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The federal-state UI program, created in part by the Social Security Act of 1935, is administered under state law based on federal requirements. The primary objectives of the program are to provide temporary, partial compensation for lost earnings of eligible individuals who become unemployed through no fault of their own and to stabilize the economy during downturns. Applicants for UI benefits must have earned at least a certain amount in wages and/or have worked a certain number of weeks to be eligible. In addition, these individuals must, with limited exceptions, be available for and able to work, and actively search for work. The federal-state structure of the program places primary responsibility for its administration on the states, and gives them wide latitude to administer the programs in a manner that best suits their needs within the guidelines established by federal law. Within the context of the federal- state partnership, Labor has general responsibility for overseeing the UI program to ensure that the program is operating effectively and efficiently. For example, Labor is responsible for monitoring state operations and procedures, providing technical assistance and training, and analyzing UI program data to diagnose potential problems. State agencies rely extensively on IT systems to carry out their UI program functions. These include systems for administering benefits and for collecting and administering the taxes used to fund the programs. Benefit systems are used for determining eligibility for benefits; recording claimant filing information, such as demographic information, work history, and qualifying wage credits; determining updates as needed, such as changes in work-seeking status; and calculating state-specific weekly and maximum benefit amounts. Tax systems are used for online reporting and payment of employers’ tax and wage reports; calculating tax, wage, and payment adjustments, and any penalties or interest accrued; processing quarterly tax and wage amounts; determining and processing late payment penalties, interest, civil penalties, or fees; and adjusting previously filed tax and wage reports as a result of a tax audit, an amended report submitted by the employer, or an erroneously keyed report. However, the majority of the states’ existing systems for UI operations were developed in the 1970s and 1980s. Although some agencies have performed upgrades throughout the years, most of the state legacy systems have aged considerably. As they have aged, the systems have presented challenges to the efficiency of states’ existing IT environments. In a survey published by the National Association of State Workforce Agencies (NASWA) in 2010, states reported the following issues: Over 90 percent of the systems run on outdated hardware and software programming languages, such as Common Business Oriented Language (COBOL), which is one of the oldest computer programming languages. The systems are costly and difficult to support. The survey found, for example, that over two-thirds of states face growing costs for mainframe hardware and software support of their legacy systems. Most states’ systems cannot efficiently handle current workload demands, including experiencing difficulties implementing new federal or state laws due to constraints imposed by the systems. States have realized an increasing need to transition to web-based online access for UI data and services. States also cited specific issues with their legacy systems, including the fact that they cannot be reprogrammed quickly enough to respond to changes resulting from legislative mandates. In addition, states have developed one or more stand-alone ancillary systems to fulfill specific needs, but these systems are not integrated with their legacy mainframe systems, decreasing efficiency. Finally, according to the states, existing legacy systems cannot keep up with advances in technology, such as the move to place more UI services online. In addition to providing general oversight of the UI program, the Department of Labor plays a role in facilitating the modernization of states’ UI IT systems. This role consists primarily of providing funding and technical support to the state agencies. In this regard, Labor distributes federal funds to each state for the purpose of administering its UI program, including funds that can be used for IT modernization. Through supplemental budget funds, Labor has supported the establishment of state consortiums, in which three or four states work together to develop and share a common system. These efforts are intended to allow multiple states to pool their resources and reduce risk in the pursuit of a single common system that they can each use after applying state-specific programming and configuration settings. Labor also helps to provide technical assistance to the states by supporting and participating in two key groups—NASWA and the Information Technology Support Center (ITSC). NASWA provides a forum for states to exchange information and ideas about how to improve program operations; serves as a liaison between state workforce agencies and federal government agencies, Congress, businesses, and intergovernmental groups; and is the collective voice of state agencies on workforce policies and issues. ITSC is funded by Labor and the states to provide technical services, core projects, and a central capacity for exploring the latest technology for all states. ITSC’s core services to states include application development, standards development, and UI modernization services, among others. Our September 2012 report noted that selected states had made varying progress in modernizing the IT systems supporting their UI programs. Specifically, we found that each of the three states that were part of a multistate consortium were in the initial phases of planning that included defining business needs and requirements; two individual states were in the development phase—that is, building the system based on requirements; two were in a “mixed” phase where part of the system was in development and part was in the operations and maintenance phase; and two were completed and in operations and maintenance. These efforts had, among other things, enhanced states’ UI technology to support web-based services with more modern databases and replaced outdated programming languages. They also included the development of auxiliary systems, such as document management systems and call center processing systems. Nevertheless, while the states had made progress, we found that they faced a number of challenges related to their modernization efforts. In particular, individual states encountered the following challenges, among others: All nine states cited limited funding and/or the increasing cost of UI systems as a major challenge. For example, they said that the economic downturn had resulted in smaller state budgets, which limited state funds for IT modernization. Moreover, once funds were identified or obtained, it often took a considerable amount of time to complete the IT project. Officials added that developing large state or multistate systems may span many years, and competing demands on resources can delay project implementation. As a result, states may fund one phase of a project with the hope that funds will be available in the future for subsequent phases. This lack of consistent funding potentially hinders effective IT project planning. Seven of the nine states cited a lack of staff in their UI offices with the expertise necessary to manage IT modernization efforts: Several states said they lacked sufficient subject matter experts knowledgeable in the extensive rules and requirements of the UI program. Such experts are essential to helping computer designers and programmers understand the program’s business processes, supporting an effective transition to the reengineered process, and identifying system requirements and needs. States also identified challenges in operating and maintaining a system developed by vendors because state employees may have lacked the needed expertise to maintain the new system once the vendor staff leave. The states added that their staffs may implement larger-scale systems only once every 10 to 15 years, leading to gaps in required knowledge and skills, process maturity and discipline, and executive oversight. States further stressed that their staffs may have expertise in an outdated computer language, while modernization efforts require them to learn new skills and more modern programming languages. According to a 2011 workforce survey, over 78 percent of state chief information officers confirmed that state salary rates and pay grade structures presented a challenge in attracting and retaining skilled IT talent. According to Labor, the limited staff resources facing states have required that subject matter experts be pulled off projects to address the workload demands of daily operations. Six of the nine states noted that continuing to operate their legacy systems while simultaneously implementing new UI systems required them to balance scarce staff resources between the two major efforts. In addition to the challenges facing individual states, we found that states participating in multistate consortiumschallenges: encountered a separate set of Representatives from all three consortiums indicated that differences among states in procurement, communication, and implementation of best practices; the involvement of each state’s IT office; and the extent to which the state’s IT is centralized could impact the effort to design and develop a common system. As a result, certain state officials told us that consortiums were not practical; one official questioned whether a common platform or system could be successfully built and made transferable among states in an economically viable way. States within a consortium often had different views on the best approach to developing and modernizing systems. State officials said that using different approaches to software development is not practical when developing a common system, but that it was difficult to reach consensus on a single approach. In one case, a state withdrew from a consortium because it disagreed with the development approach being taken by the consortium. States had concerns about liabilities in providing services to another state. IT representatives from one consortium’s lead state noted that decisions taken by the lead state could result in blame for outcomes that other states were unsatisfied with, and there was a concern that the lead state’s decision making could put other states’ funds at risk. One state withdrew from its leadership position because of such concerns about liability. Reaching agreement on the location of system resources could also be a challenge. For example, one consortium encountered difficulty in agreeing on the location of a joint data center to support the states and on the resources that should be dedicated to operating and managing the facility, while complying with individual state requirements. All three consortium representatives we spoke to noted that obtaining an independent and qualified leader for a multistate modernization effort was challenging. State IT project managers and chief information officers elaborated that while each state desires to successfully reach a shared goal, the leader of a consortium must keep the interests of each state in balance and have extensive IT experience that goes beyond his or her own state’s technology environment. Both individual states and consortium officials had developed methods to mitigate specific challenges and identified lessons learned. For example, several states were centralizing and standardizing their IT operations to address technical challenges; found that a standardized, statewide enterprise architecture could provide a more efficient way to leverage project development; and took steps to address consortium challenges they encountered, such as ensuring that each state’s IT department is involved in the project. In our report, we noted that ITSC had been tasked with preparing an assessment of lessons learned from states’ modernization efforts, but at the time of our review, this assessment had not been completed. Moreover, the scope of the assessment was limited to ITSC’s observations and had not been formally reviewed by the states or Labor. A comprehensive assessment would include formal input from states and consortiums, the ITSC Steering Committee, and Labor. Accordingly, we recommended that Labor (1) perform a comprehensive analysis of lessons learned and (2) distribute the analysis to each state through an information-sharing platform or repository, such as a website. Labor generally agreed with the first recommendation; it did not agree or disagree with the second recommendation but said it was committed to sharing lessons learned. In addition, the nine states in our review had established, to varying degrees, certain IT management controls that aligned with industry- accepted program management practices. These controls included the following: establishing aspects of a project management office for centralized and coordinated management of projects under its domain; incorporating industry-standard project management processes, tools, and techniques into their modernization UI efforts; adopting independent verification and validation to verify the quality of the modernization projects; and employing IT investment management standards, such as those called for in our IT investment management framework. If effectively implemented, these controls could help successfully guide the states’ UI modernization efforts. In summary, while states have taken steps to modernize the systems supporting their UI programs, they face a number of challenges in updating their aging legacy systems and moving program operations to a modern web-based IT environment. Many of the challenges pertain to inconsistent funding, a lack of sufficient staff with adequate expertise, and in some cases, the difficulty of effective interstate collaboration. States have begun to address some of these challenges, and the nine states in our review had established some IT management controls, which are essential to successful modernization efforts. In addition, the Department of Labor can continue to play a role in supporting and advising states in their efforts. Chairman Reichert, Ranking Member Doggett, and Members of the Subcommittee, this concludes my statement. I would be happy to answer any questions at this time. If you have any questions concerning this statement, please contact Valerie C. Melvin, Director, Information Management and Technology Resources Issues, at (202) 512-6304 or melvinv@gao.gov. Other individuals who made key contributions include Christie Motley, Assistant Director; Lee A. McCracken; and Charles E. Youman. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The joint federal-state unemployment insurance program is the Department of Labor's largest income maintenance program, and its benefits provide a critical source of income for millions of unemployed Americans. The program is overseen by Labor and administered by the states. To administer their UI programs, states rely heavily on IT systems--both to collect and process revenue from taxes and to determine eligibility and administer benefits. However, many of these systems are aging and were developed using outdated computer programming languages, making them costly and difficult to support and incapable of efficiently handling increasing workloads. Given the importance of IT to state agencies' ability to process and administer benefits, GAO was asked to provide testimony summarizing aspects of its September 2012 report on UI modernization, including key challenges states have encountered in modernizing their tax and benefit systems. To develop this statement, GAO relied on its previously published work. As GAO reported in September 2012, nine selected states had made varying degrees of progress in modernizing the information technology (IT) systems supporting their unemployment insurance (UI) programs. Specifically, the states' modernization efforts were at various stages--three were in early phases of defining business needs and requirements, two were in the process of building systems based on identified requirements, two were in a "mixed" phase of having a system that was partly operational and partly in development, and two had systems that were completely operational. The enhancements provided by these systems included supporting web-based technologies with more modern databases and replacing outdated programming languages, among others. Nevertheless, while taking steps to modernize their systems, the selected states reported encountering a number of challenges, including the following: Limited funding and the increasing cost of UI systems . The recent economic downturn resulted in smaller state budgets, limiting what could be spent on UI system modernization. In addition, competing demands and fluctuating budgets made planning for system development, which can take several years, more difficult. A lack of sufficient expertise among staff . Selected states reported that they had insufficient staff with expertise in UI program rules and requirements, the ability to maintain IT systems developed by vendors, and knowledge of current programming languages needed to maintain modernized systems. A need to continue to operate legacy systems while simultaneously implementing new systems . This required states to balance scarce resources between these two efforts. In addition, a separate set of challenges arose for states participating in multistate consortiums, which were established to pool resources for developing joint systems that could be used by all member states: Differences in state laws and business processes impacted the effort to design and develop a common system. States within a consortium differed on the best approach for developing and modernizing systems and found it difficult to reach consensus. Decision making by consortium leadership raised concerns about liability for outcomes that could negatively affect member states. Consortiums found it difficult to obtain a qualified leader for a multistate effort who was unbiased and independent. Both consortium and individual state officials had taken steps intended to mitigate challenges. GAO also noted that a comprehensive assessment of lessons learned could further assist states' efforts. In addition, the states in GAO's review had established certain IT management controls that can help successfully guide modernization efforts. These controls include establishing a project management office, using industry-standard project management guidance, and employing IT investment management standards, among others. In its prior report on states' UI system modernization efforts, GAO recommended that the Department of Labor conduct an assessment of lessons learned and distribute the analysis to states through an information-sharing platform such as a website. Labor agreed with the first recommendation; it neither agreed nor disagreed with the second recommendation, but stated that it was committed to sharing lessons learned.

To improve federal efforts to assist state and local personnel in preparing for domestic terrorist attacks, H.R. 525 would create a single focal point for policy and coordination—the President’s Council on Domestic Terrorism Preparedness—within the Executive Office of the President. The new council would include the President, several cabinet secretaries, and other selected high-level officials. An Executive Director with a staff would collaborate with executive agencies to assess threats; develop a national strategy; analyze and prioritize governmentwide budgets; and provide oversight of implementation among the different federal agencies. In principle, the creation of the new council and its specific duties appear to implement key actions needed to combat terrorism that we have identified in previous reviews. Following is a discussion of those actions, executive branch attempts to implement them, and how H.R. 525 would address them. In our May 2000 testimony, we reported that overall federal efforts to combat terrorism were fragmented. There are at least two top officials responsible for combating terrorism and both of them have other significant duties. To provide a focal point, the President appointed a National Coordinator for Security, Infrastructure Protection and Counterterrorism at the National Security Council. This position, however, has significant duties indirectly related to terrorism, including infrastructure protection and continuity of government operations. Notwithstanding the creation of this National Coordinator, it was the Attorney General who led interagency efforts to develop a national strategy. H.R. 525 would set up a single, high-level focal point in the President’s Council on Domestic Terrorism Preparedness. In addition, H.R. 525 would require that the new council’s executive chairman—who would represent the President as chairman—be appointed with the advice and consent of the Senate. This last requirement would provide Congress with greater influence and raise the visibility of the office. We testified in July 2000 that one step in developing sound programs to combat terrorism is to conduct a threat and risk assessment that can be used to develop a strategy and guide resource investments. Based upon our recommendation, the executive branch has made progress in implementing our recommendations that threat and risk assessments be done to improve federal efforts to combat terrorism. However, we remain concerned that such assessments are not being coordinated across the federal government. H.R. 525 would require a threat, risk, and capability assessment that examines critical infrastructure vulnerabilities, evaluates federal and applicable state laws used to combat terrorist attacks, and evaluates available technology and practices for protecting critical infrastructure against terrorist attacks. This assessment would form the basis for the domestic terrorism preparedness plan and annual implementation strategy. In our July 2000 testimony, we also noted that there is no comprehensive national strategy that could be used to measure progress. The Attorney General’s Five-Year Plan represents a substantial interagency effort to develop a federal strategy, but it lacks desired outcomes. The Department of Justice believes that their current plan has measurable outcomes about specific agency actions. However, in our view, the plan needs to go beyond this to define an end state. As we have previously testified, the national strategy should incorporate the chief tenets of the Government Performance and Results Act of 1993 (P.L. 130-62). The Results Act holds federal agencies accountable for achieving program results and requires federal agencies to clarify their missions, set program goals, and measure performance toward achieving these goals. H.R. 525 would require the new council to publish a domestic terrorism preparedness plan with objectives and priorities, an implementation plan, a description of roles of federal, state and local activities, and a defined end state with measurable standards for preparedness. In our December 1997 report, we reported that there was no mechanism to centrally manage funding requirements and to ensure an efficient, focused governmentwide approach to combat terrorism. Our work led to legislation that required the Office of Management and Budget to provide annual reports on governmentwide spending to combat terrorism. These reports represent a significant step toward improved management by providing strategic oversight of the magnitude and direction of spending for these programs. Yet we have not seen evidence that these reports have established priorities or identified duplication of effort as the Congress intended. H.R. 525 would require the new council to develop and make budget recommendations for federal agencies and the Office of Management and Budget. The Office of Management and Budget would have to provide an explanation in cases where the new council’s recommendations were not followed. The new council would also identify and eliminate duplication, fragmentation, and overlap in federal preparedness programs. In our April 2000 testimony, we observed that federal programs addressing terrorism appear in many cases to be overlapping and uncoordinated. To improve coordination, the executive branch has created organizations like the National Domestic Preparedness Office and various interagency working groups. In addition, the annual updates to the Attorney General’s Five-Year Plan track individual agencies’ accomplishments. Nevertheless, we have still noted that the multitude of similar federal programs have led to confusion among the state and local first responders they are meant to serve. H.R. 525 would require the new council to coordinate and oversee the implementation of related programs by federal agencies in accordance with the domestic terrorism preparedness plan. The new council would also make recommendations to the heads of federal agencies regarding their programs. Furthermore, the new council would provide written notification to any department that it believes is not in compliance with its responsibilities under the plan. Federal efforts to combat terrorism are inherently difficult to lead and manage because the policy, strategy, programs, and activities to combat terrorism cut across more than 40 agencies. Congress has been concerned with the management of these programs and, in addition to H.R. 525, two other bills have been introduced to change the overall leadership and management of programs to combat terrorism. On March 21, 2001, Representative Thornberry introduced H.R. 1158, the National Homeland Security Act, which advocates the creation of a cabinet-level head within the proposed National Homeland Security Agency to lead homeland security activities. On March 29, 2001 Representative Skelton introduced H.R. 1292, the Homeland Security Strategy Act of 2001, which calls for the development of a homeland security strategy developed by a single official designated by the President. In addition, several other proposals from congressional committee reports and various commission reports advocate changes in the structure and management of federal efforts to combat terrorism. These include Senate Report 106-404 to Accompany H.R. 4690 on the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriation Bill 2001, submitted by Senator Gregg on September 8, 2000; the report by the Gilmore Panel (the Advisory Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction, chaired by Governor James S. Gilmore III) dated December 15, 2000; the report of the Hart-Rudman Commission (the U.S. Commission on National Security/21st Century, chaired by Senators Gary Hart and Warren B. Rudman) dated January 31, 2001; and a report from the Center for Strategic and International Studies (Executive Summary of Four CSIS Working Group Reports on Homeland Defense, chaired by Messrs. Frank Cilluffo, Joseph Collins, Arnaud de Borchgrave, Daniel Goure, and Michael Horowitz) dated 2000. The bills and related proposals vary in the scope of their coverage. H.R. 525 focuses on federal programs to prepare state and local governments for dealing with domestic terrorist attacks. Other bills and proposals include the larger issue of homeland security that includes threats other than terrorism, such as military attacks. H.R. 525 would attempt to resolve cross-agency leadership problems by creating a single focal point within the Executive Office of the President. The other related bills and proposals would also create a single focal point for programs to combat terrorism, and some would have the focal point perform many of the same functions. For example, some of the proposals would have the focal point lead efforts to develop a national strategy. The proposals (with one exception) would have the focal point appointed with the advice and consent of the Senate. However, the various bills and proposals differ in where they would locate the focal point for overall leadership and management. The two proposed locations for the focal point are in the Executive Office of the President (like H.R. 525) or in a Lead Executive Agency. Table 1 shows various proposals regarding the focal point for overall leadership, the scope of its activities, and it’s location. Location of focal point Executive Office of the President Lead Executive Agency (National Homeland Security Agency) Lead Executive Agency (Department of Justice) Lead Executive Agency (National Homeland Security Agency) Homeland security (including domestic terrorism, maritime and border security, disaster relief and critical infrastructure activities) Homeland security (including antiterrorism and protection of territory and critical infrastructures from unconventional and conventional threats by military or other means) Domestic terrorism preparedness (crisis and consequence management) Domestic and international terrorism (crisis and consequence management) Homeland security (including domestic terrorism, maritime and border security, disaster relief, and critical infrastructure activities) Homeland Defense (including domestic terrorism and critical infrastructure protection) Based upon our analysis of legislative proposals, various commission reports, and our ongoing discussions with agency officials, each of the two locations for the focal point—the Executive Office of the President or a Lead Executive Agency—has its potential advantages and disadvantages. An important advantage of placing the position with the Executive Office of the President is that the focal point would be positioned to rise above the particular interests of any one federal agency. Another advantage is that the focal point would be located close to the President to resolve cross agency disagreements. A disadvantage of such a focal point would be the potential to interfere with operations conducted by the respective executive agencies. Another potential disadvantage is that the focal point might hinder direct communications between the President and the cabinet officers in charge of the respective executive agencies. Alternately, a focal point with a Lead Executive Agency could have the advantage of providing a clear and streamlined chain of command within an agency in matters of policy and operations. Under this arrangement, we believe that the Lead Executive Agency would have to be one with a dominant role in both policy and operations related to combating terrorism. Specific proposals have suggested that this agency could be either the Department of Justice (per Senate Report 106-404) or an enhanced Federal Emergency Management Agency (per H.R. 1158 and its proposed National Homeland Security Agency). Another potential advantage is that the cabinet officer of the Lead Executive Agency might have better access to the President than a mid-level focal point with the Executive Office of the President. A disadvantage of the Lead Executive Agency approach is that the focal point—which would report to the cabinet head of the Lead Executive Agency—would lack autonomy. Further, a Lead Executive Agency would have other major missions and duties that might distract the focal point from combating terrorism. Also, other agencies may view the focal point’s decisions and actions as parochial rather than in the collective best interest. H.R. 525 would provide the new President’s Council on Domestic Terrorism Preparedness with a variety of duties. In conducting these duties, the new council would, to the extent practicable, rely on existing documents, interagency bodies, and existing governmental entities. Nevertheless, the passage of H.R. 525 would warrant a review of several existing organizations to compare their duties with the new council’s responsibilities. In some cases, those existing organizations may no longer be required or would have to conduct their activities under the supervision of the new council. For example, the National Domestic Preparedness Office was created to be a focal point for state and local governments and has a state and local advisory group. The new council has similar duties that may eliminate the need for the National Domestic Preparedness Office. As another example, we believe the overall coordinating role of the new council may require adjustments to the coordinating roles played by the Federal Emergency Management Agency, the Department of Justice’s Office of State and Local Domestic Preparedness Support, and the National Security Council’s Weapons of Mass Destruction Preparedness Group in the policy coordinating committee on Counterterrorism and National Preparedness. In our ongoing work, we have found that there is no consensus—either in Congress, the Executive Branch, the various commissions, or the organizations representing first responders—as to whether the focal point should be in the Executive Office of the President or a Lead Executive Agency. Developing such a consensus on the focal point for overall leadership and management, determining its location, and providing it with legitimacy and authority through legislation, is an important task that lies ahead. We believe that this hearing and the debate that it engenders, will help to reach that consensus. This concludes our testimony. We would be pleased to answer any questions you may have. For future questions about this statement, please contact Raymond J. Decker, Director, Defense Capabilities and Management at (202) 512-6020. Individuals making key contributions to this statement include Stephen L. Caldwell and Krislin Nalwalk. Combating Terrorism: Observations on Options to Improve the Federal Response (GAO-01-660T, Apr. 24, 2001). Combating Terrorism: Accountability Over Medical Supplies Needs Further Improvement (GAO-01-463, Mar. 30, 2001). Combating Terrorism: Federal Response Teams Provide Varied Capabilities; Opportunities Remain to Improve Coordination (GAO-01-14, Nov. 30, 2000). Combating Terrorism: Linking Threats to Strategies and Resources (GAO/T-NSIAD-00-218, July 26, 2000). Combating Terrorism: Comments on Bill H.R. 4210 to Manage Selected Counterterrorist Programs (GAO/T-NSIAD-00-172, May 4, 2000). Combating Terrorism: How Five Foreign Countries Are Organized to Combat Terrorism (GAO/NSIAD-00-85, Apr. 7, 2000). Combating Terrorism: Issues in Managing Counterterrorist Programs (GAO/T-NSIAD-00-145, Apr. 6, 2000). Combating Terrorism: Need to Eliminate Duplicate Federal Weapons of Mass Destruction Training (GAO/NSIAD-00-64, Mar. 21, 2000). Critical Infrastructure Protection: Comprehensive Strategy Can Draw on Year 2000 Experiences (GAO/AIMD-00-1, Oct. 1, 1999). Combating Terrorism: Need for Comprehensive Threat and Risk Assessments of Chemical and Biological Attack (GAO/NSIAD-99-163, Sept. 7, 1999). Combating Terrorism: Observations on Growth in Federal Programs (GAO/T-NSIAD-99-181, June 9, 1999). Combating Terrorism: Issues to Be Resolved to Improve Counterterrorist Operations (GAO/NSIAD-99-135, May 13, 1999). Combating Terrorism: Observations on Federal Spending to Combat Terrorism (GAO/T-NSIAD/GGD-99-107, Mar. 11, 1999). Combating Terrorism: Opportunities to Improve Domestic Preparedness Program Focus and Efficiency (GAO/NSIAD-99-3, Nov. 12, 1998).

This testimony discusses the Preparedness Against Domestic Terrorism Act of 2001 (H.R. 525). To improve federal efforts to help state and local personnel prepare for domestic terrorist attacks, H.R. 525 would create a single focal point for policy and coordination--the President's Council on Domestic Terrorism Preparedness--within the White House. The new council would include the President, several cabinet secretaries, and other selected high-level officials. H.R. 525 would (1) create an executive director position with a staff that would collaborate with other executive agencies to assess threats, (2) require the new council to develop a national strategy, (3) require the new council to analyze and review budgets, and (4) require the new council to oversee implementation among the different federal agencies. Other proposals before Congress would also create a single focal point for terrorism. Some of these proposals place the focal point in the Executive Office of the President and others place it in a lead executive agency. Both locations have advantages and disadvantages.

In November 1994, the Office of the Director of Defense Procurement initiated the SPS program to acquire and deploy a single automated system to perform all contract-management-related functions for all DOD organizations. At that time, life-cycle costs were estimated to be about $3 billion over a 10-year period. From 1994 to 1996, the department defined SPS requirements and solicited commercially available vendor products for satisfying these requirements. Subsequently, in April 1997, the department awarded a contract to American Management Systems (AMS), Incorporated, to (1) use AMS’s commercially available contract management system as the foundation for SPS, (2) modify this commercial product as necessary to meet DOD requirements, and (3) perform related services. The department also directed the contractor to deliver functionality for the system in four incremental releases. The department later increased the number of releases across which this functionality would be delivered to seven, reduced the size of the increments, and allowed certain more critical functionality to be delivered sooner (see table 1 for proposed SPS functionality by increment). Since our report of July 2001, DOD has revised its plans. According to the SPS program manager, current plans no longer include increments 6 and 7 or releases 5.0 and 5.1. Instead, release 4.2 (increment 5) will include at least three, but not more than seven, subreleases. At this time, only the first of the potentially seven 4.2 subreleases is under contract. This subrelease is scheduled for delivery in April 2002, with deployment to the Army and the Defense Logistics Agency scheduled for June 2002. Based on the original delivery date, release 4.2 is about one year overdue. The department reports that it has yet to define the requirements to be included within the remaining 4.2 subreleases, and has not executed any contract task orders for these subreleases. According to SPS officials, they will decide later this year whether to invest in these additional releases. As of December 2001, the department reported that it had deployed four SPS releases to over 777 locations. The Director of Defense Procurement (DDP) has responsibility for the SPS program, and the CIO is the milestone decision authority for SPS because the program is classified as a major Defense acquisition. Our July 2001 report detailed program problems and investment management weaknesses. To address these weaknesses, we recommended, among other things, that the department report on the lessons to be learned from its SPS experience for the benefit of future system acquisitions. Similarly, other reviews of the program commissioned by the department in the wake of our review raised similar concerns and identified other problems and management weaknesses. The findings from our report are summarized below in two major categories: lack of economic justification for the program and inability to meet program commitments. We also summarize the findings of the other studies. The Clinger-Cohen Act of 1996, OMB guidance, DOD policy, and practices of leading organizations provide an effective framework for managing information technology investments, not just when a program is initiated, but continuously throughout the life of the program. Together, they provide for (1) economically justifying proposed projects on the basis of reliable analyses of expected life-cycle costs, benefits, and risks; and (2) using these analyses throughout a project’s life-cycle as the basis for investment selection, control, and evaluation decisionmaking, and doing so for large projects (to the maximum extent practical) by dividing them into a series of smaller, incremental subprojects or releases and individually justifying investment in each separate increment on the basis of costs, benefits, and risks. The department had not met these investment management tenets for SPS. First, the latest economic analysis for the program—dated January 2000— was not based on reliable estimates because most of the cost estimates in the 2000 economic analysis were estimates carried forward from the April 1997 analysis (adjusted for inflation). Only the cost estimates being funded and managed by the SPS program office, which were 13 percent of the total estimated life-cycle cost in the analysis, were updated in 2000 to reflect more current contract estimates and actual expenditures/ obligations for fiscal years 1995 through 1999. Moreover, the military services, which share funding responsibility with the SPS program office for implementing the program, questioned the reliability of these cost estimates. However, this uncertainty was not reflected in the economic analysis using any type of sensitivity analysis. A sensitivity analysis would have disclosed for decisionmakers the investment risk being assumed by relying on the estimates presented in the economic analysis. Moreover, the latest economic analysis (January 2000) was outdated because it did not reflect the program’s current status and known problems and risks. For instance, this analysis was based on a program scope and associated costs and benefits that anticipated four software releases. However, as mentioned previously, the program now consists of five releases, and subreleases within releases, in order to accommodate changes in SPS requirements. Estimates of the full costs, benefits, and risks relating to this additional release and its subreleases were not part of the 2000 economic analysis. Also, this analysis did not fully recognize actual and expected delays in meeting SPS’s full operational capability milestone, which had been slipped by 3½ years and DOD officials say that further delays are currently expected. Such delays not only increase the system acquisition costs but also postpone, and thus reduce, accrual of system benefits. Further, several DOD components are now questioning whether they will even deploy the software, which would further reduce SPS’s cost effectiveness calculations in the 2000 economic analysis. Second, the department had not used these analyses as the basis for deciding whether to continue to invest in the program. The latest economic analysis showed that SPS was not a cost-beneficial investment because the estimated benefits to be realized did not exceed estimated program costs. In fact, the 2000 analysis showed estimated costs of $3.7 billion and estimated benefits of $1.4 billion, which was a recovery of only 37 percent of costs. According to the former SPS program manager, this analysis was not used to manage the program and there was no DOD requirement for updating an economic analysis when changes to the program occurred. Third, DOD had not made its investment decisions incrementally as required by the Clinger-Cohen Act and OMB guidance. That is, although the department is planning to acquire and implement SPS as a series of five increments, it has not made decisions about whether to invest in each release on the basis of the release’s expected return on investment, as well as whether prior releases were actually achieving return-on-investment expectations. In fact, for the four increments that have been deployed, the department had not validated whether the increments were providing promised benefits and was not accounting for the costs associated with each increment so that it could even determine actual return on investment. Instead, the department had treated investment in this program as one, monolithic investment decision, justified by a single, “all-or-nothing” economic analysis. Our work has shown that it is difficult to estimate, with any degree of accuracy, cost and schedule estimates for many increments to be delivered over many years because later increments are not well understood or defined. Also, these estimates are subject to change based on actual program experiences and changing requirements. This “all-or- nothing” approach to investing in large system acquisitions, like SPS, has repeatedly proven to be ineffective across the federal government, resulting in huge sums being invested in systems that do not provide commensurate benefits. Measuring progress against program commitments is closely aligned with economically justifying information-technology investments, and is equally important to ensuring effective investment management. The Clinger- Cohen Act, OMB guidance, DOD policy, and practices of leading organizations provide for making and using such measurements as part of informed investment decisionmaking. DOD had not met key commitments and was uncertain whether it was meeting other commitments because it was not measuring them. (See table 2 for a summary of the department’s progress against commitments.) two analyses, such as the number and dollar value of estimated benefits, and the information gathered did not map to the 22 benefit types listed in the 1997 economic analysis. Instead, the study collected subjective judgments (perceptions) that were not based on predefined performance metrics for SPS capabilities and impacts. Thus, the department was not measuring SPS against its promised benefits. The former program manager told us that knowing whether SPS was producing value and meeting commitments was not the program office’s objective because there was no departmental requirement to do so. Rather, the objective was simply to acquire and deploy the system. Similarly, CIO officials told us that the department was not validating whether deployed releases of SPS were producing benefits because there was no DOD requirement to do so and no metrics had been defined for such validation. However, the Clinger-Cohen Act of 1996 and OMB guidance emphasize the need to have investment management processes and information to help ensure that information-technology projects are being implemented at acceptable costs and within reasonable and expected time frames and that they are contributing to tangible, observable improvements in mission performance (i.e., that projects are meeting the cost, schedule, and performance commitments upon which their approval was justified). For programs such as SPS, DOD required this cost, schedule, and performance information to be reported quarterly to ensure that programs did not deviate significantly from expectations. In effect, these requirements and guidance recognize that one cannot manage what one cannot measure. Shortly after receiving our draft report for comment, the department initiated several studies to determine the program’s current status, assess program risks, and identify actions to improve the program. These studies focused on such areas as program costs and benefits, planned commitments, requirements management, program office structure, and systems acceptance testing. Consistent with our findings and recommendations, these studies identified the need to establish performance metrics that will enable the department to measure the program’s performance and tie these metrics to benefits and customer satisfaction; clearly define organizational accountability for the program; provide training for all new software releases; standardize the underlying business processes and rules that the system is to support; acquire the software source code; and address open customer concerns to ensure user satisfaction. In addition, the department found other program management concerns not directly within the scope of our review, such as the need to appropriately staff the program management office with sufficient resources and address the current lack of technical expertise in areas such as contracting, software engineering, testing, and configuration management; modify the existing contract to recognize that the system does not employ a commercial-off-the-shelf software product, but rather is based on customized software product; establish DOD-controlled requirements management and acceptance testing processes and practices that are rigorous and disciplined; and assess the continued viability of the existing contractor. To address the many weaknesses in the SPS program, we made several recommendations in our July 2001 report. Specifically, we recommended that (1) investment in future releases or major enhancements to the system be made conditional on the department first demonstrating that the system is producing benefits that exceed costs; (2) future investment decisions, including those regarding operations and maintenance, be based on complete and reliable economic justifications; (3) any analysis produced to justify further investment in the program be validated by the Director, Program Analysis and Evaluation; (4) the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence (C3I) clarify organizational accountability and responsibility for measuring SPS program against commitments and to ensure that these responsibilities are met; (5) program officials take the necessary actions to determine the current state of progress against program commitments; and (6) the Assistant Secretary of Defense for C3I report by October 31, 2001, to the Secretary of Defense and to DOD’s relevant congressional committees on lessons learned from the SPS investment management experience, including what actions will be taken to prevent a recurrence of this experience on other system acquisition programs. DOD’s reaction to our report was mixed. In official comments on a draft of our report, the Deputy CIO generally disagreed with our recommendations, noting that they would delay development and deployment of SPS. Since that time, however, the department has acknowledged its SPS problems and begun taking steps to address some of them. In particular, it has done the following. The department has established and communicated to applicable DOD organizations the program’s chain-of-command and defined each participating organization’s responsibilities. For example, the Joint Requirements Board was delegated the responsibility for working with the program users to define and reach agreement on the needed functionality for each software release. The department has restructured the program office and assigned additional staff, including individuals with expertise in the areas of contracting, software engineering, configuration management, and testing. However, according to the current program manager, additional critical resources are needed, such as two computer information technology specialists and three contracting experts. It has renegotiated certain contract provisions to assume greater responsibility and accountability for the requirements management and testing activities. For example, DOD, rather than the contractor, is now responsible for writing the test plans. However, additional contract changes remain to be addressed, such as training, help-desk structure, facilities support, and system operations and maintenance. The department has designated a user-satisfaction manager for the program and defined forums and approaches intended to better engage users. It has established a new testing process, whereby program officials now develop the test plans and maintain control over all software testing performed. In addition, SPS officials have stated their intention to prepare analyses for future program activities beyond those already under contract, such as the acquisition of additional system releases, and use these analyses in deciding whether to continue to deploy SPS or pursue another alternative; define system performance metrics and use these metrics to assess the extent to which benefits have been realized from already deployed system releases; and report on lessons learned from its SPS experience to the Secretary of Defense and relevant congressional committees. The department’s actions and intentions are positive steps and consistent with our recommendations. However, much remains to be accomplished. In particular, the department has yet to implement our recommendations aimed at ensuring that (1) future releases or major enhancements to the system be made conditional on first demonstrating that the system is producing benefits that exceed costs and (2) future investment decisions, including those regarding operations and maintenance, be based on a complete and reliable economic justification. We also remain concerned about the future of SPS for several additional reasons. First, definitive plans for how and when to justify future system releases or major enhancements to existing releases do not yet exist. Second, SPS officials told us that release 4.2, which is currently under contract, may be expanded to include functionality that was envisioned for releases 5.0 and 5.1. Including such additional functionality could compound existing problems and increase program costs. Third, not all defense components have agreed to adopt SPS. For example, the Air Force has not committed to deploying the software; the National Imagery and Mapping Agency, the Defense Advanced Research Projects Agency, and the Defense Intelligence Agency have not yet decided to use SPS; and the DOD Education Agency has already adopted another system because it deemed SPS too expensive.

The Department of Defense (DOD) lacks management control of the Standard Procurement System (SPS). DOD has not (1) ensured that accountability and responsibility for measuring progress against commitments are clearly understood, performed, and reported; (2) demonstrated, on the basis of reliable data and credible analysis, that the proposed system solution will produce economic benefits commensurate with costs; (3) used data on progress against project cost, schedule, and performance commitments throughout a project's life cycle to make investment decisions; and (4) divided this large project into a series of incremental investment decisions to spread the risks over smaller, more manageable components. GAO found that DOD lacks the basic information needed to make informed decisions on how to proceed with the project. Nevertheless, DOD continues to push forward in acquiring and deploying additional versions of SPS. This testimony summarizes a July report (GAO-01-682).

CT uses ionizing radiation and computers to produce cross-sectional images of internal organs and body structures. MRI uses powerful magnets, radio waves, and computers to create cross-sectional images of internal body tissues. NM uses radioactive materials in conjunction with an imaging modality to produce images that show both structure and function within the body. During an NM service, such as a PET scan, a patient is administered a small amount of radioactive substance, called a radiopharmaceutical or radiotracer, which is subsequently tracked by a radiation detector outside the body to render time-lapse images of the radioactive material as it moves through the body. Imaging equipment that uses ionizing radiation—such as CT and NM—poses greater potential short- and long-term health risks to patients than other imaging modalities, such as ultrasound. This is because ionizing radiation has enough energy to potentially damage DNA and thus increase a person’s lifetime risk of developing cancer. In addition, exposure to very high doses of this radiation can cause short-term injuries, such as burns or hair loss. To become accredited, ADI suppliers must select a CMS-designated accrediting organization, pay the organization an accreditation fee, and demonstrate that they meet the organization’s standards. As we noted in our May 2013 report, the accrediting organization fees vary. For example, as of January 2013, ACR’s accreditation fees ranged from $1,800 to $2,400 per unit of imaging equipment, while IAC’s fees ranged from $2,600 to $3,800 per application. While the specific standards used by accrediting organizations vary, MIPPA requires all accrediting organizations to have standards in five areas: (1) qualifications of medical personnel who are not physicians and who furnish the technical component of ADI services, (2) qualifications and responsibilities of medical directors and supervising physicians, (3) procedures to ensure that equipment used in furnishing the technical component of ADI services meets performance specifications, (4) procedures to ensure the safety of beneficiaries and staff, and (5) establishment and maintenance of a quality-assurance and quality control program. To demonstrate that they meet their chosen accrediting organization’s standards, ADI suppliers must submit an online application as well as required documents, which could include information on qualifications of personnel or a sample of patient images. MIPPA requires CMS to oversee the accrediting organizations and authorizes CMS to modify the list of selected accrediting organizations, if necessary. Federal regulations specify that CMS may conduct “validation audits” of accredited ADI suppliers and provide for the withdrawal of CMS approval of an accrediting organization at any time if CMS determines that the organization no longer adequately ensures that ADI suppliers meet or exceed Medicare requirements. CMS also has requirements for accrediting organizations. For example, accrediting organizations are responsible for using mid-cycle audit procedures, such as unannounced site visits, to ensure that accredited suppliers maintain compliance with MIPPA’s requirements for the duration of the 3-year accreditation cycle. According to CMS officials, five full-time staff are budgeted to oversee and develop standards for the ADI accreditation requirement.report was issued in May 2013, CMS has begun to gather input from stakeholders on the development of national standards for the accreditation of ADI suppliers, which it intends to develop by the end of 2014. Medicare payment for the technical component of ADI services is intended to cover the cost of the equipment, supplies, and nonphysician staff and is generally significantly higher than the payment for the professional component. The payment for the professional component is intended to cover the physician’s time in interpreting the image and writing a report on the findings. Medicare reimburses providers through different payment systems depending on where an ADI service is performed. When an ADI service is performed in an office setting such as a physician’s office or IDTF, both the professional and technical component are billed under the Medicare physician fee schedule. Alternatively, when the ADI service is performed in an institutional setting, the physician can only bill the Medicare physician fee schedule for the professional component, while the payment for the technical component is covered under a different Medicare payment system, according to the setting in which the service is provided. For example, the technical component of an ADI service provided in a hospital outpatient department is paid under the hospital outpatient prospective payment system (OPPS). The use of imaging services grew rapidly during the decade starting in 2000—MedPAC reported that cumulative growth between 2000 and 2009 totaled 85 percent—although the rate of growth has declined in recent Growth in imaging utilization and expenditures—including those years.for ADI services—prompted action from Congress, CMS, and private payers. Congress has enacted legislation to help ensure appropriate Medicare payment for ADI services; in some cases, this legislation has had the effect of reducing Medicare payment for the technical component of certain imaging services, such as the following: The Deficit Reduction Act of 2005 required that, beginning January 1, 2007, Medicare payment for certain imaging services under the physician fee schedule not exceed the amount Medicare pays under the OPPS. The Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA) and the American Tax Relief Act of 2012 (ATRA), reduced payment for the technical component of ADI services by adjusting assumptions, known as utilization rates, related to the rate at which certain imaging equipment is used. These changes had the effect of reducing payments for the technical component of ADI services beginning in January 2011, with additional reductions scheduled to take effect in 2014. CMS implemented additional changes to Medicare payment policy to help ensure appropriate payment for ADI services, which had the effect of reducing Medicare payment for certain imaging services. In January 2006 CMS began applying a multiple procedure payment reduction (MPPR) policy to the technical component of certain CT and MRI services, which reduces payments for these services when they are furnished together by Beginning in the same physician, to the same patient, on the same day.January 2012, CMS expanded the MPPR by reducing payments for the lower-priced professional component of certain CT and MRI services by 25 percent when two or more services are furnished by the same physician to the same patient, in the same session, on the same day. Private payers have also implemented policies designed to help control imaging utilization and expenditures. One such policy is the use of prior authorization, which can involve requirements that physician orders of imaging services meet certain guidelines in order to qualify for payment. Further, best practice guidelines, such as ACR’s Appropriateness Criteria, as well as efforts to educate physicians and patients about radiation exposure associated with imaging, have been used to promote the appropriate use of imaging services. We found that the number of ADI services provided to Medicare beneficiaries in the office setting—an indicator of access to those services—began declining before and continued declining after the accreditation requirement went into effect on January 1, 2012 (see fig. 1). In particular, the rate of decline from 2009 to 2010 was similar to the rate from 2011 to 2012 for the CT; MRI; and NM, including PET, services in our analysis. These results suggest that the overall decline was driven, at least in part, by factors other than accreditation. For example, the number of CT services per 1,000 FFS beneficiaries declined by 9 percent between 2009 and 2010, 4 percent between 2010 and 2011, and 9 percent between 2011 and 2012. The percentage decline in the number of ADI services provided in the office setting was generally similar in both urban and rural areas during the period we studied, although we found that substantially more services were provided in urban areas than in rural areas (see fig. 2). The number of ADI services per 1,000 FFS beneficiaries provided in urban areas declined by 7 percent between 2011 and 2012, while the number of services provided in rural areas declined by 8 percent. In addition, 148 services were provided per 1,000 FFS beneficiaries in urban areas in 2012, as compared to 81 services per 1,000 beneficiaries in rural areas. One reason the use of ADI services in the office setting was relatively low in rural areas was that a smaller percentage of ADI services in these areas were provided in the office setting. Specifically, in 2012, about 14 percent of ADI services in rural areas were provided in the office setting, compared to 23 percent of ADI services in urban areas. See appendix I for trends in the number of urban and rural ADI services by modality. The effect of accreditation on access—as illustrated by our analysis of the trends in ADI services in the office setting—is unclear in the context of recent policy and payment changes as well as other factors affecting the use of imaging services. In particular, the decline in ADI services occurred amid the implementation in recent years of public and private policies to slow rapid increases in imaging utilization and spending. Factors, including public and private policies, that may have played a role in the decline in ADI service utilization include the following: Medicare payment reductions. Reductions in Medicare payment may have contributed to the decline in ADI services between 2009 and 2012 as reduced fees may affect physicians’ willingness to For example, provide imaging services for Medicare beneficiaries.PPACA and ATRA reduced payment for the technical component of ADI services by adjusting assumptions related to the rate at which certain imaging equipment is used. In addition, CMS implemented a 25 percent payment reduction for the professional component of certain CT and MRI services under the MPPR, effective January 1, 2012—the same date the accreditation requirement went into effect. Prior authorization. Studies have suggested that increased use of prior authorization policies among private payers in recent years has contributed to a decrease in ADI services provided to privately insured individuals. These policies may have had a spillover effect on Medicare, thus contributing to the decline in ADI services provided to Medicare beneficiaries from 2009 to 2012. Radiation awareness. Studies have suggested that increased physician and patient awareness of the risks associated with radiation exposure may have led to a decline in CT and NM services provided to Medicare beneficiaries. Of the remaining two suppliers, one indicated that it was unsure whether accreditation has affected the number of services it provides, while the other indicated that accreditation may have led to a slight increase in the number of services it provides. accreditation process. According to the representatives, IAC and ACR requested that CMS provide a provisional accreditation period for new suppliers that would allow them to obtain reimbursement for applicable ADI services while they undergo the accreditation process. According to CMS, it does not have the authority under MIPPA to provide provisional accreditation, as the statute only allows accredited suppliers to be paid for the technical component of ADI services beginning on January 1, 2012. We provided a draft of this report for review to the Department of Health and Human Services, and the agency stated that it had no comments. We are sending copies of this report to the Secretary of Health and Human Services and appropriate congressional committees. The report will also be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. In addition to the contact named above, Phyllis Thorburn, Assistant Director; William Black, Assistant Director; Priyanka Sethi Bansal; William A. Crafton; Richard Lipinski; Beth Morrison; Jennifer Whitworth; and Rachael Wojnowicz made key contributions to this report.

The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) required that beginning January 1, 2012, suppliers that produce the images for Medicare-covered ADI services in office settings, such as physician offices, be accredited by an organization approved by CMS. MIPPA mandated that GAO issue two reports on the effect of the accreditation requirement. The first report, issued in 2013, assessed CMS's standards for the accreditation of ADI suppliers and its oversight of the accreditation requirement. In this report, GAO examined the effect the accreditation requirement may have had on beneficiary access to ADI services provided in the office setting. To do this, GAO examined trends in the use of the three ADI modalities—CT; MRI; and NM, including PET—provided to Medicare beneficiaries from 2009 through 2012 that were subject to the ADI accreditation requirement. GAO also interviewed CMS officials, representatives of the Intersocietal Accreditation Commission and the American College of Radiology—the two CMS-approved accrediting organizations that accounted for about 99 percent of all accredited suppliers as of January 2013; and 19 accredited ADI suppliers that reflected a range of geographic areas, imaging services provided, and accrediting organizations used. In addition, GAO reviewed relevant literature to understand the context of any observed changes in ADI services throughout the period studied. GAO found that the number of advanced diagnostic imaging (ADI) services provided to Medicare beneficiaries in the office setting—an indicator of access to those services—began declining before and continued declining after the accreditation requirement went into effect on January 1, 2012. In particular, the rate of decline from 2009 to 2010 was similar to the rate from 2011 to 2012 for magnetic resonance imaging (MRI); computed tomography (CT); and nuclear medicine (NM), including positron emission tomography (PET) services. These results suggest that the overall decline was driven, at least in part, by factors other than accreditation. The percentage decline in the number of ADI services provided in the office setting was generally similar in both urban and rural areas during the period GAO studied. The effect of accreditation on access is unclear in the context of recent policy and payment changes implemented by Medicare and private payers. For example, the Centers for Medicare & Medicaid Services (CMS) reduced Medicare payment for certain CT and MRI services, which could have contributed to the decline in the number of these services. Officials from CMS, representatives from the accrediting organizations, and accredited ADI suppliers GAO interviewed suggested that any effect of the accreditation requirement on access was likely limited. The Department of Health and Human Services stated that it had no comments on a draft of this report.

Federal operations and facilities have been disrupted by a range of events, including the terrorist attacks on September 11, 2001; the Oklahoma City bombing; localized shutdowns due to severe weather conditions, such as hurricanes Katrina, Rita, and Wilma in 2005; and building-level events, such as asbestos contamination at the Department of the Interior’s headquarters. In addition, federal operations could be significantly disrupted by people-only events, such as an outbreak of severe acute respiratory illness (SARS). Such disruptions, particularly if prolonged, can lead to interruptions in essential government services. Prudent management, therefore, requires that federal agencies develop plans for dealing with emergency situations, including maintaining services, ensuring proper authority for government actions, and protecting vital assets. Until relatively recently, continuity planning was generally the responsibility of individual agencies. In October 1998, Presidential Decision Directive (PDD) 67 identified FEMA—which is responsible for leading the effort to prepare the nation for all hazards and managing federal response and recovery efforts following any national incident—as the lead agent for federal COOP planning across the federal executive branch. FEMA’s responsibilities include ● formulating guidance for agencies to use in developing viable plans; ● coordinating interagency exercises and facilitating interagency coordination, as appropriate; and ● overseeing and assessing the status of COOP capabilities across the executive branch. In July 1999, FEMA issued the first version of Federal Preparedness Circular (FPC) 65, its guidance to the federal executive branch on developing viable and executable contingency plans that facilitate the performance of essential functions during any emergency. FPC 65 applies to all federal executive branch departments and agencies at all levels, including locations outside Washington, D.C. FEMA released an updated version of FPC 65 in June 2004, providing additional guidance to agencies on each of the topics covered in the original guidance. In partial response to a recommendation we made in April 2004, the 2004 version of FPC 65 also included new guidance on human capital considerations for COOP events. For example, the guidance instructed agencies to consider telework—also referred to as telecommuting or flexiplace—as an option in their continuity planning. Telework has gained widespread attention over the past decade in both the public and private sectors as a human capital flexibility that offers a variety of potential benefits to employers, employees, and society. In a 2003 report to Congress on the status of telework in the federal government, the Director of OPM described telework as “an invaluable management tool which not only allows employees greater flexibility to balance their personal and professional duties, but also allows both management and employees to cope with the uncertainties of potential disruptions in the workplace, including terrorist threats.” A 2005 OPM report on telework notes the importance of telework in responding flexibly to emergency situations, as demonstrated in the wake of the devastation caused by Hurricane Katrina, when telework served as a tool to help alleviate the issues caused by steeply rising fuel prices nationwide. In 2004, we surveyed major federal agencies at your request to determine how they planned to use telework during COOP events. We reported that, although agencies were not required to use telework in their COOP plans, 1 of the 21 agency continuity plans in place on May 1, 2004, documented plans to address some essential functions through telework. In addition, 10 agencies reported that they intended to use telework following a COOP event, even though those intentions were not documented in their continuity plans. The focus on using telework in continuity planning has been heightened in response to the threat of pandemic influenza. In November 2005, the White House issued a national strategy to address this threat, which states that social distancing measures, such as telework, may be appropriate public health interventions for infection control and containment during a pandemic outbreak. The strategy requires federal departments and agencies to develop and exercise preparedness and response plans that take into account the potential impact of a pandemic on the federal workforce. It also tasks DHS—the parent department of FEMA—with developing plans to implement the strategy in regard to domestic incident management and federal coordination. In May 2006, the White House issued an implementation plan in support of the pandemic strategy. This plan outlines the responsibilities of various agencies and establishes time lines for future actions. Although more agencies reported plans for essential team members to telework during a COOP event than in our 2004 survey, few documented that they had made the necessary preparations to effectively use telework during an emergency. While FPC 65 does not require agencies to use telework during a COOP event, it does state that they should consider the use of telework in their continuity plans and procedures. All of the 23 agencies that we surveyed indicated that they considered telework as an option during COOP planning, and 15 addressed telework in their COOP plans (see table 1). For agencies that did not plan to use telework during a COOP event, reasons cited by agency officials for this decision included (1) the need to access classified information— which is not permitted outside of secured areas—in order to perform agency essential functions and (2) a lack of funding for the necessary equipment acquisition and network modifications. The agencies that did plan to use telework in emergencies did not consistently demonstrate that they were prepared to do so. We previously identified steps agencies should take to effectively use telework during an emergency. These include preparations to ensure that staff has adequate technological capacity, assistance, and training. Table 1 provides examples of gaps in agencies’ preparations, such as the following: ● Nine of the 23 agencies reported that some of their COOP essential team members are expected to telework during a COOP event. However, only one agency documented that it had notified its team members that they were expected to telework during such an event. ● None of the 23 agencies demonstrated that it could ensure adequate technological capacity to allow designated personnel to telework during a COOP event. No guidance addresses the steps that agencies should take to ensure that they are fully prepared to use telework during a COOP event. When we reported the results of our 2004 survey, we recommended that the Secretary of Homeland Security direct the Under Secretary for Emergency Preparedness and Response to develop, in consultation with OPM, guidance on the steps that agencies should take to adequately prepare for the use of telework during a COOP event. However, to date, no such guidance has been created. In March 2006, FEMA disseminated guidance to agencies regarding the incorporation of pandemic influenza considerations into COOP planning. The guidance states that the dynamic nature of a pandemic influenza requires that the federal government take a nontraditional approach to continuity planning and readiness. It suggests the use of telework during such an event. According to the guidance, agencies should consider which essential functions and services can be conducted from a remote location (e.g., home) using telework. However, the guidance does not address the steps agencies should take when preparing to use telework during an emergency. For example, although the guidance states that agencies should consider testing, training, and exercising of social distancing techniques, including telework, it does not address other necessary preparations, such as informing designated staff of the expectation to telework or providing them with adequate technical resources and support. Earlier this month, after we briefed your staff, the White House released an Implementation Plan in support of the National Strategy for Pandemic Influenza. This plan calls on OPM to work with DHS and other agencies to revise existing telework guidance and issue new guidance on human capital planning and COOP. The plan establishes an expectation that these actions will be completed within 3 months. If the forthcoming guidance from DHS and other responsible agencies does not require agencies to make the necessary preparations for telework, agencies are unlikely to take all the steps necessary to ensure that employees will be able to effectively use telework to perform essential functions during any COOP event. In addition, inadequate preparations could limit the ability of nonessential employees to contribute to agency missions during extended emergencies, including a pandemic influenza scenario. In summary, Mr. Chairman, although more agencies reported plans for essential team members to telework during a COOP event than in our previous survey, few documented that they had made the necessary preparations to effectively use telework during an emergency. In addition, agencies lack guidance on what these necessary preparations are. Although FEMA’s recent telework guidance does not address the steps agencies should take to prepare to use telework during an emergency event, new guidance on telework and COOP is expected to be released later this year. If the new guidance does not specify the steps agencies need to take to adequately prepare their telework capabilities for use during an emergency situation, it will be difficult for agencies to make adequate preparations to ensure that their teleworking staff will be able to perform essential functions during a COOP event. In our report, we made recommendations aimed at helping to ensure that agencies are adequately prepared to perform essential functions following an emergency. Among other things, we recommended that the Secretary of Homeland Security direct the FEMA Director to establish a time line for developing, in consultation with OPM, guidance on the steps that agencies should take to adequately prepare for the use of telework during a COOP event. In commenting on a draft of the report, the Director of DHS’s Liaison Office partially agreed with this recommendation and stated that FEMA will coordinate with OPM in the development of a time line for further telework guidance. In addition, he stated that both FEMA and OPM have provided guidance on the use of telework. However, as stated in our report, present guidance does not address the preparations agencies should make for using telework during emergencies. With the release of the White House’s Implementation Plan regarding pandemic influenza, a time line has now been established for the issuance of revised guidance on telework; however, unless the forthcoming guidance addresses the necessary preparations, agencies may not be able to use telework effectively to ensure the continuity of their essential functions. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions that you or other members of the Committee may have at this time. For information about this testimony, please contact Linda D. Koontz at (202) 512-6240 or at koontzl@gao.gov. Key contributions to this testimony were made by James R. Sweetman, Jr., Assistant Director; Barbara Collier; Sairah Ijaz; Nick Marinos; and Kim Zelonis. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

To ensure that essential government services are available in emergencies, federal agencies are required to develop continuity of operations (COOP) plans. The Federal Emergency Management Agency (FEMA), within the Department of Homeland Security (DHS), is responsible for providing guidance to agencies on developing such plans. Its guidance states that in their continuity planning, agencies should consider the use of telework--that is, work performed at an employee's home or at a work location other than a traditional office. The Office of Personnel Management (OPM) recently reported that 43 agencies have identified staff eligible to telework, and that more than 140,000 federal employees used telework in 2004. OPM also reported that many government operations can be carried out in emergencies using telework. For example, telework appears to be an effective strategy for responding to a pandemic--a global outbreak of disease that spreads easily from person to person and causes serious illness and death worldwide. In previous work, GAO identified steps that agencies should take to effectively use telework during an emergency. GAO was asked to testify on how agencies are addressing the use of telework in their continuity planning, which is among the topics discussed in a report being released today (GAO-06-713). Although agencies are not required to use telework in continuity planning, 9 of the 23 agencies surveyed reported plans for essential team members to telework during a COOP event, compared to 3 in GAO's previous survey. However, few documented that they made the necessary preparations to effectively use telework during such an event. For example, only 1 agency documented that it had communicated this expectation to its emergency team members. One reason for the low levels of preparations reported is that FEMA has not provided specific guidance on preparations needed to use telework during emergencies. Recently, FEMA disseminated guidance to agencies on incorporating pandemic influenza considerations into COOP planning. Although this guidance suggests the use of telework during such an event, it does not address the steps agencies should take when preparing to use telework during an emergency. Without specific guidance, agencies are unlikely to adequately prepare their telework capabilities for use during a COOP event. In addition, inadequate preparations could limit the ability of nonessential employees to contribute to agency missions during extended emergencies, including pandemic influenza. In its report released today, GAO recommends, among other things, that FEMA establish a time line for developing, in consultation with the OPM, guidance on preparations needed for using telework during a COOP event. In commenting on a draft of the report, DHS partially agreed with GAO's recommendation and stated that FEMA will coordinate with OPM in developing a time line for further telework guidance. DHS also stated that both FEMA and OPM have provided telework guidance. However, as GAO's report stated, present guidance does not address the preparations federal agencies should make for using telework during emergencies. On May 3 the White House announced the release of an Implementation Plan in support of the National Strategy for Pandemic Influenza. This plan calls on OPM to work with DHS and other agencies to revise existing telework guidance and issue new guidance on human capital planning and COOP. The plan establishes an expectation that these actions will be completed within 3 months. If the forthcoming guidance does not require agencies to make necessary preparations for telework, agencies are unlikely to take all the steps necessary to ensure that employees will be able to effectively use telework to perform essential functions in extended emergencies, such as a pandemic influenza.

In August 2014, we reported that, on the basis of our review of land-use agreement data for fiscal year 2012, VA does not maintain reliable data on the total number of land-use agreements and VA did not accurately estimate the revenues those agreements generate. According to the land- use agreement data provided to us from VA’s Capital Asset Inventory (CAI) system—the system VA utilizes to record land-use agreements— VA reported that it had over 400 land-use agreements generating over $24.8 million in estimated revenues for fiscal year 2012. However, when one of VA’s administrations—the Veterans Health Administration (VHA)— initiated steps to verify the accuracy and validity of the data it originally provided to us, it made several corrections to the data that raised questions about their accuracy, validity, and completeness. Examples of these corrections include the following: at one medical center, one land-use agreement was recorded 37 times, once for each building listed in the agreement; and VHA also noted that 13 agreements included in the system should have been removed because those agreements were terminated prior to fiscal year 2012. At the three VA medical centers we reviewed, we also found examples of errors in the land-use agreement data. Examples of these errors include the following: VHA did not include 17 land-use agreements for the medical centers in New York and North Chicago, collectively. VHA incorrectly estimated the revenues it expected to collect for the medical center in West Los Angeles. VHA revised its estimated revenues from all land-use agreements in fiscal year 2012 from about $700,000 to over $810,000. However, our review of VA’s land-use agreements at this medical center indicated that the amount that should have been reflected in the system was approximately $1.5 million. VA policy requires that CAI be updated quarterly until an agreement ends. VA’s approach on maintaining the data in CAI relies heavily on data being entered timely and accurately by a staff person in the local medical center; however, we found that VA did not have a mechanism to ensure that the data in CAI are updated quarterly as required and that the data are accurate, valid, and complete. By implementing a mechanism that will allow it to assess whether medical centers have timely entered the appropriate land-use agreement data into CAI, and working with the medical centers to correct the data, as needed, VA would be better positioned to reliably account for land-use agreements and the associated revenues that they generate. In our August 2014 report, we also found weaknesses in the billing and collection processes for land-use agreements at three selected VA medical centers due primarily to ineffective monitoring. Inadequate billing: We found inadequate billing practices at all three medical centers we visited. Specifically, we found that VA had billed partners in 20 of 34 revenue-generating land-use agreements for the correct amount; however, the partners in the remaining 14 agreements were not billed for the correct amount. On the basis of our analysis of the agreements, we found that VA underbilled by almost $300,000 of the approximately $5.3 million that was due under the agreements, a difference of about 5.6 percent. For most of these errors, we found that VA did not adjust the revenues it collected for inflation. We also found that the West Los Angeles medical center inappropriately coded the billing so that the proceeds of its sharing agreements, which totaled over $500,000, were sent to its facilities account rather than the medical-care appropriations account that benefits veterans, as required. VA officials stated that the department did not perform systematic reviews of the billings and collections practices at the three medical centers, which we discuss in more detail later. A mechanism for ensuring transactions are promptly and accurately recorded could help VA collect revenues that its sharing partners owe. Opportunities for improved collaboration: At New York and North Chicago, we found that VA could improve collaboration among key internal staff, which could enhance the collections of proceeds for its land-use agreements. For example, at the New York site, the VA fiscal office created spreadsheets to improve the revenue collection for more than 20 agreements. However, because the contracting office failed to inform the fiscal office of the new agreements, the fiscal office did not have all of the renewed contracts or amended agreements that could clearly show the rent due. According to a VA fiscal official at the New York office, repeated requests were made to the contracting office for these documents; however, the contracting office did not respond to these requests by the time of our visit in January 2014. By taking additional steps to foster a collaborative environment, VHA could improve its billing and collection practices. No segregation of duties: On the basis of a walkthrough of the billing and collections process we conducted during our field visits, and an interview with a West Los Angeles VA official, we found that West Los Angeles did not properly segregate duties. Specifically, the office responsible for monitoring agreements also bills the invoices, receives collections, and submits the collections to the agent cashier for deposit. Because of the lack of appropriate segregation of duties at West Los Angeles, the revenue-collection process has increased vulnerability to potential fraud and abuse. This assignment of roles and responsibilities for one office is not typical of the sites we examined. At the other medical centers we visited, these same activities were separated amongst a few offices, as outlined in VA’s guidance on deposits. VA headquarters officials informed us that program officials located at VA headquarters do not perform any systematic review to evaluate the medical centers’ processes related to billing and collections at the local level. VA officials further informed us that VHA headquarters also lacks critical data—the actual land-use agreements—that would allow it to routinely monitor billing and collection efforts for land-use agreements across the department. One VA headquarters official told us that the agency is considering the merits of dispatching small teams of staff from program offices located at VA’s headquarters to assist the local offices with activities such as billing and collections. However, as of May 2014, VA had not implemented this proposed action or any other mechanism for monitoring the billing and collections activity at the three medical centers. Until VA performs systematic reviews, VA will lack assurance that the three selected medical centers are taking all required actions to bill and collect revenues generated from land-use agreements. In our August 2014 report, we found that VA did not effectively monitor many of its land-use agreements at the New York and West Los Angeles medical centers. We found problems with unenforced agreement terms, expired agreements, and instances where land-use agreements did not exist. Examples include the following: In West Los Angeles, VA waived the revenues in an agreement with a nonprofit organization—$250,000 in fiscal year 2012 alone—due to financial hardship. However, VA policy does not allow revenues to be waived. In New York, one sharing partner—a local school of medicine—with seven expired agreements remained on the property and occupied the premises without written authorization during fiscal year 2012. Our review of VA’s policy on sharing agreements showed that VA did not have any specific guidance on how to manage agreements before they expired, including the renewal process. In New York, we observed more antennas on the roof of a VA facility than the New York medical center had recorded in CAI. After we brought this observation to their attention, New York VA officials researched the owners of these antennas and could not find written agreements or records of payments received for seven antennas. According to New York VA officials, now that they are aware of the antennas, they will either establish agreements with the tenants or disconnect the antennas. The City of Los Angeles has used 12 acres of VA land for recreational use since the 1980s without a signed agreement or payments to VA. An official said that VA cannot negotiate agreements in this case due to an ongoing lawsuit brought on behalf of homeless veterans about its land-use agreement authority. We found that VA had not established mechanisms to monitor the various agreements at the West Los Angeles and New York medical centers. VA officials stated that they had not performed systematic reviews of these agreements and had not established mechanisms to enable them to do so. Without a mechanism for accessing land-use agreements to perform needed monitoring activities, VA lacks reasonable assurance that the partners are meeting the agreed-upon terms, agreements are renewed as appropriate, and agreements are documented in writing, as required. This is particularly important if sharing partners are using VA land for purposes that may increase risk to VA’s liability (e.g., an emergency situation that might occur at the park and fields in the city of Los Angeles). Finally, with lapsed agreements, VA not only forgoes revenue, but it also misses opportunities to provide additional services to veterans in need of assistance and to enhance its operations. Our August 2014 report made six recommendations to the Secretary of Veterans Affairs to improve the quality of the data collected on specific land-use agreements (i.e., sharing, outleases, licenses, and permits), enhance the monitoring of its revenue process and monitoring of agreements, and improve the accountability of VA in this area. Specifically, we recommended that VA develop a mechanism to independently verify the accuracy, validity, and completeness of VHA data for land-use agreements in CAI; develop mechanisms to monitor the billing and collection of revenues for land-use agreements to help ensure that transactions are promptly and accurately recorded at the three medical centers; develop mechanisms to foster collaboration between key offices to improve billing and collections practices at the New York and North Chicago medical centers; develop mechanisms to access and monitor the status of land-use agreements to help ensure that agreement terms are enforced, agreements are renewed as appropriate, and all agreements are documented in writing as required, at the New York and West Los Angeles selected medical centers; develop a plan for the West Lost Angeles medical center that identifies the steps to be taken, timelines, and responsibilities in implementing segregation of duties over the billing and collections process; and develop guidance on managing expiring agreements at the three medical centers. After reviewing our draft report, VA concurred with all six of our recommendations. VA’s comments are provided in full in our August 2014 report. In November 2014, VA provided us an update on the actions it is taking to respond to these recommendations in our August 2014 report. These actions include (1) drafting CAI changes to improve data integrity and to notify staff of expiring or expired agreements, (2) updating guidance and standard operating procedures for managing land-use agreements and training staff on the new guidance, and (3) transitioning oversight and operations of the West Los Angeles land-use agreement program to the regional level. If implemented effectively, these actions should improve the quality of the data collected on specific land-use agreements, enhance the monitoring of VA’s revenue process and agreements, and improve accountability for these agreements. Chairman Coffman, Ranking Member Kuster, and members of the subcommittee, this concludes my prepared remarks. I look forward to answering any questions that you may have at this time. For further information on this testimony, please contact Stephen Lord at (202) 512-6722 or lords@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Matthew Valenta, Assistant Director; Carla Craddock; Marcus Corbin; Colin Fallon; Olivia Lopez; and Shana Wallace. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

VA manages one of the nation's largest federal property portfolios. To manage these properties, VA uses land-use authorities that allow VA to enter into various types of agreements for the use of its property in exchange for revenues or in-kind considerations. GAO was asked to examine VA's use of land-use agreements. This report addresses the extent to which VA (1) maintains reliable data on land-use agreements and the revenue they generate, (2) monitors the billing and collection processes at selected VA medical centers, and (3) monitors land-use agreements at selected VA medical centers. GAO analyzed data from VA's database on its land-use agreements for fiscal year 2012, reviewed agency documentation, and interviewed VA officials. GAO also visited three medical centers to review the monitoring of land-use agreements and the collection and billing of the associated revenues. GAO selected medical centers with the largest number of agreements or highest amount of estimated revenue. The site visit results cannot be generalized to all VA facilities. According to the Department of Veterans Affairs' (VA) Capital Asset Inventory system—the system VA utilizes to record land-use agreements and revenues—VA had hundreds of land-use agreements with tens of millions of dollars in estimated revenues for fiscal year 2012, but GAO's review raised questions about the reliability of those data. For example, one land-use agreement was recorded 37 times, once for each building listed in the agreement, 13 agreements terminated before fiscal year 2012 had not been removed from the system, and more than $240,000 in revenue from one medical center had not been recorded. VA relies on local medical center staff to enter data timely and accurately, but lacks a mechanism for independently verifying the data. Implementing such a mechanism and working with medical centers to make corrections as needed would better position VA to reliably account for its land-use agreements and the associated revenues they generate. GAO found weaknesses in the billing and collection processes for land-use agreements at three selected VA medical centers due primarily to ineffective monitoring. For example, VA incorrectly billed its sharing partners for 14 of 34 agreements at the three centers, which resulted in VA not billing $300,000 of the nearly $5.3 million owed. In addition, at the New York center, VA had not billed a sharing partner for several years' rent that totaled over $1 million. VA began collections after discovering the error; over $200,000 was outstanding as of April 2014. VA stated that it did not perform systematic reviews of the billing and collection practices at the three centers and had not established mechanisms to do so. VA officials at the New York and North Chicago centers stated that information is also not timely shared on the status of agreements with offices that perform billing due to lack of collaboration. Until VA addresses these issues, VA lacks assurance that it is collecting the revenues owed by its sharing partners. VA did not effectively monitor many of its land-use agreements at two of the centers. GAO found problems with unenforced agreement terms, expired agreements, and instances where land-use agreements did not exist. Examples include the following: In West Los Angeles, VA waived the revenues in an agreement with a nonprofit organization—$250,000 in fiscal year 2012 alone—due to financial hardship. However, VA policy does not allow revenues to be waived. In New York, one sharing partner—a local School of Medicine—with seven expired agreements remained on the property and occupied the premises without written authorization during fiscal year 2012. The City of Los Angeles has used 12 acres of VA land for recreational use since the 1980s without a signed agreement or payments to VA. An official said that VA cannot negotiate agreements due to an ongoing lawsuit brought on behalf of homeless veterans about its land-use agreement authority. VA does not perform systematic reviews and has not established mechanisms to do so, thus hindering its ability to effectively monitor its agreements and use of its properties. GAO is making six recommendations to VA including recommendations to improve the quality of its data, foster collaboration between key offices, and enhance monitoring. VA concurred with the recommendations.

As our past work has found, climate-related and extreme weather impacts on physical infrastructure such as buildings, roads, and bridges, as well as on federal lands, increase federal fiscal exposures. Infrastructure is typically designed to withstand and operate within historical climate patterns. However, according to NRC, as the climate changes, historical patterns do not provide reliable predictions of the future, in particular, those related to extreme weather events.may underestimate potential climate-related impacts over their design life, which can range up to 50 to 100 years. Federal agencies responsible for the long-term management of federal lands face similar impacts. Climate- Thus, infrastructure designs related impacts can increase the operating and maintenance costs of infrastructure and federal lands or decrease the infrastructure’s life span, leading to increased fiscal exposures for the federal government that are not fully reflected in the budget. Key examples from our recent work include (1) Department of Defense (DOD) facilities, (2) other large federal facilities such as National Aeronautics and Space Administration (NASA) centers, and (3) federal lands such as National Parks. DOD manages a global real-estate portfolio that includes over 555,000 facilities and 28 million acres of land with a replacement value that DOD estimates at close to $850 billion. Within the United States, the department’s extensive infrastructure of bases and training ranges— critical to maintaining military readiness—extends across the country, including Alaska and Hawaii. DOD incurs substantial costs for infrastructure, with a base budget for military construction and family housing totaling more than $9.8 billion in fiscal year 2014. As we reported in May 2014, this infrastructure is vulnerable to the potential impacts of climate change, including increased drought and more frequent and severe extreme weather events in certain locations. In its 2014 Quadrennial Defense Review, DOD stated that the impacts of climate change may increase the frequency, scale, and complexity of future missions, while undermining the capacity of domestic installations to support training activities. For example, in our May 2014 report on DOD infrastructure adaptation, we found that drought contributed to wildfires at an Army installation in Alaska that delayed certain units’ training (see fig. 1). systems in training and decreased the realism of the training. GAO-14-446. Adaptation is defined as adjustments to natural or human systems in response to actual or expected climate change. The federal government owns and operates hundreds of thousands of non-defense buildings and facilities that a changing climate could affect. For example, NASA’s real property holdings include more than 5,000 buildings and other structures such as wind tunnels, laboratories, launch pads, and test stands. In total, these NASA assets—many of which are located in vulnerable coastal areas—represent more than $32 billion in current replacement value. Our April 2013 report on infrastructure adaptation showed the vulnerability of Johnson Space Center and its mission control center, often referred to as the nerve center for America’s human space program. As shown in figure 3, the center is located in Houston, Texas, near Galveston Bay and the Gulf of Mexico. Johnson Space Center’s facilities—conservatively valued at $2.3 billion—are vulnerable to storm surge and sea level rise because of their location on the Gulf Coast. The federal government manages nearly 30 percent of the land in the United States for a variety of purposes, such as recreation, grazing, timber, and habitat for fish and wildlife. Specifically, federal agencies manage natural resources on about 650 million acres of land, including 401 national park units and 155 national forests. As we reported in May 2013, these resources are vulnerable to changes in the climate, including increases in air and water temperatures, wildfires, and drought; forests stressed by drought becoming more vulnerable to insect infestations; rising sea levels; and reduced snow cover and retreating glaciers. In addition, various species are expected to be at risk of becoming extinct due to the loss of habitat critical to their survival. Many of these changes have already been observed on federally managed lands and waters and are expected to continue, and one of the areas where the federal government’s fiscal exposure is expected to increase is in its role as the manager of large amounts of land and other natural resources. According to USGCRP’s May 2014 National Climate Assessment, hotter and drier weather and earlier snowmelt mean that wildfires in the West start earlier in the spring, last later into the fall, and burn more acres. Appropriations for the federal government’s wildland fire management activities have tripled, averaging over $3 billion annually in recent years, up from about $1 billion in fiscal year 1999. As we have previously reported, improved climate-related technical assistance to all levels of government can help limit federal fiscal exposures. Existing federal efforts encourage a decentralized approach to such assistance, with federal agencies incorporating climate-related information into their planning, operations, policies, and programs and establishing their own methods for collecting, storing, and disseminating climate-related data. Reflecting this approach, technical assistance from the federal government to state and local governments also exists in an uncoordinated confederation of networks and institutions. As we reported in our February 2013 high-risk update, the challenge is to develop a cohesive approach at the federal level that also informs action at the state and local levels. The Executive Office of the President and federal agencies have many efforts underway to increase the resilience of federal infrastructure and programs. For example, executive orders issued in 2009 and 2013 directed agencies to create climate change adaptation plans which integrate consideration of climate change into their operations and overall mission objectives, including the costs and benefits of improving climate adaptation and resilience with real-property investments and construction of new facilities. Recognizing these and many other emerging efforts, our prior work shows that federal decision makers still need help understanding how to build resilience into their infrastructure and planning processes. For example, in our May 2014 report, we found that DOD requires selected infrastructure planning efforts for existing and future infrastructure to account for climate change impacts, but its planners did not have key information necessary to make decisions that account for climate and We recommended that DOD provide further information to related risks. installation planners and clarify actions that account for climate change in planning documents. DOD concurred with our recommendations. GAO-14-446. even with the creation of strategic policy documents and high-level agency guidance. The federal government invests tens of billions of dollars annually in infrastructure projects prioritized and supervised by state and local governments. In total, the United States has about 4 million miles of roads and 30,000 wastewater treatment and collection facilities. According to a 2010 Congressional Budget Office report, total public spending on transportation and water infrastructure exceeds $300 billion annually, with roughly 25 percent of this amount coming from the federal government However, the and the rest coming from state and local governments. federal government plays a limited role in project-level planning for transportation and wastewater infrastructure, and state and local efforts to consider climate change in infrastructure planning have occurred primarily on a limited, ad hoc basis. The federal government has a key interest in helping state and local decision makers increase their resilience to climate change and extreme weather events because uninsured losses may increase the federal government’s fiscal exposure through federal disaster assistance programs. Congressional Budget Office, Public Spending on Transportation and Water Infrastructure, Pub. No. 4088 (Washington, D.C.: November 2010). the national gross domestic product by about $7.8 billion.shows Louisiana State Highway 1 leading to Port Fourchon. We found in April 2013, that infrastructure decision makers have not systematically incorporated potential climate change impacts in planning for roads, bridges, and wastewater management systems because, among other factors, they face challenges identifying and obtaining available climate change information best suited for their projects.when good scientific information is available, it may not be in the actionable, practical form needed for decision makers to use in planning and designing infrastructure. Such decision makers work with traditional Even engineering processes, which often require very specific and discrete information. Moreover, local decision makers—who, in this case, specialize in infrastructure planning, not climate science—need assistance from experts who can help them translate available climate change information into something that is locally relevant. In our site visits to several locations where decision makers overcame these challenges— including Louisiana State Highway 1—state and local officials emphasized the role that the federal government could play in helping to increase local resilience. Any effective adaptation strategy must recognize that state and local governments are on the front lines in both responding to immediate weather-related disasters and in preparing for the potential longer-term impacts associated with climate change. We reported in October 2009, that insufficient site-specific data—such as local temperature and precipitation projections—complicate state and local decisions to justify the current costs of adaptation efforts for potentially less certain future benefits. We recommended that the appropriate entities within the Executive Office of the President develop a strategic plan for adaptation that, among other things, identifies mechanisms to increase the capacity of federal, state, and local agencies to incorporate information about current and potential climate change impacts into government decision making. USGCRP’s April 2012 strategic plan for climate change science recognizes this need, by identifying enhanced information management and sharing as a key objective. According to this plan, USGCRP is pursuing the development of a global change information system to leverage existing climate-related tools, services, and portals from federal agencies. In our April 2013 report, we concluded that the federal government could help state and local efforts to increase their resilience by (1) improving access to and use of available climate-related information, (2) providing officials with improved access to technical assistance, and (3) helping officials consider climate change in their planning processes. As a result, we recommended, among other things, that the Executive Director of USGCRP or other federal entity designated by the Executive Office of the President work with relevant agencies to identify for decision makers the “best available” climate-related information for infrastructure planning and update this information over time, and to clarify sources of local assistance for incorporating climate-related information and analysis into infrastructure planning, and communicate how such assistance will be provided over time. These entities have not directly responded to our recommendations, but the President’s June 2013 Climate Action Plan and November 2013 Executive Order 13653 drew attention to the need for improved technical assistance. For example, the Executive Order directs numerous federal agencies, supported by USGCRP, to work together to develop and provide authoritative, easily accessible, usable, and timely data, information, and decision-support tools on climate preparedness and resilience. In addition, on July 16, 2014, the President announced a series of actions to help state, local, and tribal leaders prepare their communities for the impacts of climate change by developing more resilient infrastructure and rebuilding existing infrastructure stronger and smarter. We have work under way assessing the strengths and limitations of governmentwide options to meet the climate-related information needs of federal, state, local, and private sector decision makers. We also have work under way exploring, among other things, the risks extreme weather events and climate change pose to public health, agriculture, public transit systems, and federal insurance programs. This work may help identify other steps the federal government could take to limit its fiscal exposure and make our communities more resilient to extreme weather events. Chairman Murray, Ranking Member Sessions, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer any questions you have at this time. If you or your staff members have any questions about this testimony, please contact me at (202) 512-3841 or gomezj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Alfredo Gomez, Director; Michael Hix, Assistant Director; Jeanette Soares; Kiki Theodoropoulos; and Joseph Dean Thompson made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Certain types of extreme weather events have become more frequent or intense according to the United States Global Change Research Program, including prolonged periods of heat, heavy downpours, and, in some regions, floods and droughts. While it is not possible to link any individual weather event to climate change, the impacts of these events affect many sectors of our economy, including the budgets of federal, state, and local governments. GAO focuses particular attention on government operations it identifies as posing a “high risk” to the American taxpayer and, in February 2013, added to its High Risk List the area Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks . GAO's past work has identified a variety of fiscal exposures—responsibilities, programs, and activities that may explicitly or implicitly expose the federal government to future spending. This testimony is based on reports GAO issued from August 2007 to May 2014, and discusses (1) federal fiscal exposures resulting from climate-related and extreme weather impacts on critical infrastructure and federal lands, and (2) how improved federal technical assistance to all levels of government can help reduce climate-related fiscal exposures. GAO is not making new recommendations but has made numerous recommendations in prior reports on this topic, which are in varying states of implementation by the Executive Office of the President and federal agencies. Climate change and related extreme weather impacts on infrastructure and federal lands increase fiscal exposures that the federal budget does not fully reflect. Investing in resilience—actions to reduce potential future losses rather than waiting for an event to occur and paying for recovery afterward—can reduce the potential impacts of climate-related events. Implementing resilience measures creates additional up-front costs but could also confer benefits, such as a reduction in future damages from climate-related events. Key examples of vulnerable infrastructure and federal lands GAO has identified include: Department of Defense (DOD) facilities. DOD manages a global real-estate portfolio that includes over 555,000 facilities and 28 million acres of land with a replacement value DOD estimates at close to $850 billion. This infrastructure is vulnerable to the potential impacts of climate change and related extreme weather events. For example, in May 2014, GAO reported that a military base in the desert Southwest experienced a rain event in August 2013 in which about 1 year's worth of rain fell in 80 minutes. The flooding caused by the storm damaged more than 160 facilities, 8 roads, 1 bridge, and 11,000 linear feet of fencing, resulting in an estimated $64 million in damages. Other large federal facilities. The federal government owns and operates hundreds of thousands of other facilities that a changing climate could affect. For example, the National Aeronautics and Space Administration (NASA) manages more than 5,000 buildings and other structures. GAO reported in April 2013 that, in total, these NASA assets—many of which are in coastal areas vulnerable to storm surge and sea level rise—represent more than $32 billion in current replacement value. Federal lands. The federal government manages nearly 30 percent of the land in the United States—about 650 million acres of land—including 401 national park units and 155 national forests. GAO reported in May 2013 that these resources are vulnerable to changes in the climate, including the possibility of more frequent and severe droughts and wildfires. Appropriations for federal wildland fire management activities have tripled since 1999, averaging over $3 billion annually in recent years. GAO has reported that improved climate-related technical assistance to all levels of government can help limit federal fiscal exposures. The federal government invests tens of billions of dollars annually in infrastructure projects that state and local governments prioritize, such as roads and bridges. Total public spending on transportation and water infrastructure exceeds $300 billion annually, with about 25 percent coming from the federal government and the rest from state and local governments. GAO's April 2013 report on infrastructure adaptation concluded that the federal government could help state and local efforts to increase their resilience by (1) improving access to and use of available climate-related information, (2) providing officials with improved access to technical assistance, and (3) helping officials consider climate change in their planning processes.

The following information provides details about our agents’ experiences and observations entering the United States from Mexico at border crossings in California and Texas and at two crossings in Arizona. California: On February 9, 2006, two agents entered California from Mexico on foot. One of the agents presented as identification a counterfeit West Virginia driver’s license and the other presented a counterfeit Virginia driver’s license. The CBP officers on duty asked both agents if they were U.S. citizens and both responded that they were. The officers also asked the agents if they were bringing anything into the United States from Mexico and both answered that they were not. The CBP officers did not request any other documents to prove citizenship, and allowed both agents to enter the United States. Texas: On February 23, 2006, two agents crossed the border from Mexico into Texas on foot. When the first agent arrived at the checkpoint, a CBP officer asked him for his citizenship information; the agent responded that he was from the United States. The officer also asked if the agent had brought back anything from Mexico. The agent responded that he had not, and the officer told him that he could enter the Unites States. At this point, the agent asked the CBP officer if he wished to see any identification. The officer replied “OK, that would be good.” The agent began to remove his counterfeit Virginia driver’s license from his wallet and the inspector said “That’s fine, you can go.” The CBP officer never looked at the driver’s license. When the second agent reached the checkpoint, another CBP officer asked him for his citizenship information and he responded that he was from the United States. The CBP officer asked the agent if he had purchased anything in Mexico and the agent replied that he had not. He was then asked to show some form of identification and he produced a counterfeit West Virginia driver’s license. The CBP inspector briefly looked at the driver’s license and then told the agent he could enter the United States. Arizona, first crossing: On March 14, 2006, two agents arrived at the border crossing between Mexico and Arizona in a rental vehicle. Upon request, the agents gave the CBP officer a counterfeit West Virginia driver’s license and counterfeit Virginia driver’s license as identification. As the CBP officer reviewed the licenses, he asked the agents if they were U.S. citizens and they responded that they were. The officer also asked if the agents had purchased anything in Mexico and they said they had not. The CBP officer then requested that agents open the trunk of their vehicle. The agents heard the inspector tap on several parts of the side of the vehicle first with his hand and again with what appeared to be a wand. The officer closed the trunk of the vehicle, returned the agents’ driver’s licenses, and allowed them to enter the United States. Arizona, second crossing: On March 15, 2006, two agents again entered Arizona from Mexico on foot at a different location than the previous day. One of the agents carried a counterfeit West Virginia driver’s license and a counterfeit West Virginia birth certificate. The other carried a counterfeit Virginia driver’s license and a counterfeit New York birth certificate. As the agents were about to cross the border, another agent who had crossed the border earlier using his genuine identification phoned to inform them that the CBP officer on duty had swiped his Virginia driver’s license through a scanner. Because the counterfeit driver’s licenses the agents were carrying had fake magnetic strips, the agents decided that in the event they were questioned about their licenses, they would tell the CBP officers that the strips had become demagnetized. When the agents entered the checkpoint area, they saw that they were the only people crossing the border at that time. The agents observed three CBP officers on duty; one was manning the checkpoint and the other two were standing a short distance away. The officer manning the checkpoint was sitting at a cubicle with a computer and what appeared to be a card scanner. The agents engaged this officer in conversation to distract him from scanning their driver’s licenses. After a few moments, the CBP officer asked the agents if they were both U.S. citizens and they said that they were. He then asked if they had purchased anything in Mexico and they said no. He then told them to have a nice day and allowed them to enter the United States. He never asked for any form of identification. The following information provides details about our agents’ experiences and observations entering the United States from Canada at Michigan, New York, Idaho, and Washington border crossings. Michigan: On May 1, 2006, two agents drove in a rental vehicle to a border crossing in Michigan. When asked for identification by the CBP officer on duty, the agents presented a counterfeit West Virginia driver’s license and a counterfeit Virginia driver’s license. As the CBP officer examined the licenses, he asked the agents if they were U.S. citizens and they responded that they were. The CBP officer then asked if the agents had birth certificates. One agent presented a counterfeit New York birth certificate and the other presented a counterfeit West Virginia birth certificate. The agents observed that the CBP officer checked the birth certificates against the driver’s licenses to see if the dates and names matched. The CBP officer then asked the agents if they had purchased anything in Canada and they responded that they had not. The officer also asked what the agents were doing in Canada and they responded that they had been visiting a casino in Canada. The CBP officer then returned the agents’ documentation and allowed them to enter the United States. New York, first crossing: On May 3, 2006, two agents entered New York in a rental vehicle from Canada. The agents handed the CBP officer on duty counterfeit driver’s licenses from West Virginia and Virginia. The CBP officer asked for the agents’ country of citizenship and the agents responded that they were from the United States. The CBP officer also asked the agents why they had visited Canada. The agents responded that they had been gambling in the casinos. The CBP officer told the agents to have a nice day and allowed them to enter the United States. New York, second crossing: On the same date, the same two agents crossed back into Canada and re-entered New York at a different location. The agents handed the CBP officer at the checkpoint the same two counterfeit driver’s licenses from West Virginia and Virginia. The officer asked the agents what they were doing in Canada and they replied that they been gambling at a casino. The officer then asked the agents how much money they were bringing back into the country and they told him they had approximately $325, combined. The officer next asked the agent driving the car to step out of the vehicle and open the trunk. As the agent complied, he noticed that the officer placed the two driver’s licenses on the counter in his booth. The officer asked the agent whose car they were driving and the agent told him that it was a rental. A second officer then asked the agent to stand away from the vehicle and take his hands out of his pockets. The first officer inspected the trunk of the vehicle, which was empty. At this point, the officer handed back the two driver’s licenses and told the agents to proceed into the United States. Idaho: On May 23, 2006, two agents drove in a rental vehicle to a border crossing in Idaho. The agents handed the CBP officer on duty a counterfeit West Virginia driver’s license and a counterfeit Virginia driver’s license. As the CBP officer examined the licenses, he asked the agents if they were U.S. citizens and they responded that they were. The CBP officer then asked if the agents had birth certificates. One agent presented a counterfeit New York birth certificate and the other presented a counterfeit West Virginia birth certificate. The agents observed that the CBP officer checked the birth certificates against the driver’s licenses to see if the dates and names matched. The officer also asked what the agents were doing in Canada and they responded that they had been sightseeing. The CBP officer then returned the agents’ documentation and allowed them to enter the United States. Washington: On May 24, 2006, two agents drove in a rental vehicle to a border crossing checkpoint in Washington. When the agents arrived at the border, they noticed that no one was at the checkpoint booth at the side of the road. Shortly thereafter, a CBP officer emerged from a building near the checkpoint booth and asked the agents to state their nationality. The agents responded that they were Americans. The CBP officer next asked the agents where they were born, and they responded New York and West Virginia. The agents then handed the CBP officers their counterfeit West Virginia and Virginia driver’s licenses. The officer looked at the licenses briefly and asked the agents why they had visited Canada. The agents responded that they had a day off from a conference that they were attending in Washington and decided to do some sightseeing. The CBP officer returned the agents’ identification and allowed them to enter the United States. We conducted a corrective action briefing with officials from CBP on June 9, 2006, about the results of our investigation. CBP agreed its officers are not able to identify all forms of counterfeit identification presented at land border crossings. CBP officials also stated that they fully support the newly promulgated Western Hemisphere Travel Initiative, which will require all travelers, including U.S. citizens, within the Western Hemisphere to have a passport or other secure identification deemed sufficient by the Secretary of Homeland Security to enter or reenter the United States. The current timeline proposes that the new requirements will apply to all land border crossings beginning on December 31, 2007. The proposed timeline was developed pursuant to the Intelligence Reform and Terrorism Prevention Act of 2004. The act requires the Secretary of Homeland Security, in consultation with the Secretary of State, to implement a plan no later than January 1, 2008, to strengthen the border screening process through the use of passports and other secure documentation in recognition of the fact that additional safeguards are needed to ensure that terrorists cannot enter the United States. However, the Senate recently passed a bill to extend the implementation deadline from January 1, 2008, to June 1, 2009. Additionally, the Senate bill would also authorize the Secretary of State, in consultation with the Secretary of Homeland Security, to develop a travel document known as a Passport Card to facilitate travel of U.S. citizens to Canada, Mexico, the countries located in the Caribbean, and Bermuda. We did not assess whether this initiative would be fully implemented by either the January 2008 or June 2009 deadline or whether it would be effective in preventing terrorists from entering the United States. The results of our current work indicate that (1) CBP officers at the nine land border crossings tested did not detect the counterfeit identification we used and (2) people who enter the United States via land crossings are not always asked to present identification. Furthermore, our periodic tests since 2002 clearly show that CBP officers are unable to effectively identify counterfeit driver’s licenses, birth certificates, and other documents. This vulnerability potentially allows terrorists or others involved in criminal activity to pass freely into the United States from Canada or Mexico with little or no chance of being detected. It will be critical that the new initiative requiring travelers within the Western Hemisphere to present passports or other accepted documents to enter the United States address the vulnerabilities shown by our work. Mr. Chairman and Members of the Committee, this concludes my statement. I would be pleased to answer any questions that you may have at this time. For further information about this testimony, please contact Gregory D. Kutz at (202) 512-7455 or kutzg@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Currently, U.S. citizens are not required to present a passport when entering the United States from countries in the Western Hemisphere. However, U.S. citizens are required to establish citizenship to a CBP officer's satisfaction. On its Web site, U.S. Customs and Border Protection (CBP) advises U.S. citizens that an officer may ask for identification documents as proof of citizenship, including birth certificates or baptismal records and a photo identification document. In 2003, we testified that CBP officers were not readily capable of identifying whether individuals seeking entry into the United States were using counterfeit identification to prove citizenship. Specifically, our agents were able to easily enter the United States from Canada and Mexico using fictitious names and counterfeit driver's licenses and birth certificates. Later in 2003 and 2004, we continued to be able to successfully enter the United States using counterfeit identification at land border crossings, but were denied entry on one occasion. Because of Congress's concerns that these weaknesses could possibly be exploited by terrorists or others involved in criminal activity, Congress requested that we assess the current status of security at the nation's borders. Specifically, Congress requested that we conduct a follow-up investigation to determine whether the vulnerabilities exposed in our prior work continue to exist. Agents successfully entered the United States using fictitious driver's licenses and other bogus documentation through nine land ports of entry on the northern and southern borders. CBP officers never questioned the authenticity of the counterfeit documents presented at any of the nine crossings. On three occasions--in California, Texas, and Arizona--agents crossed the border on foot. At two of these locations--Texas and Arizona--CBP allowed the agents entry into the United States without asking for or inspecting any identification documents. After completing our investigation, we briefed officials from CBP on June 9, 2006. CBP agreed that its officers are not able to identify all forms of counterfeit identification presented at land border crossings and fully supports a new initiative that will require all travelers to present a passport before entering the United States. We did not assess whether this initiative would be effective in preventing terrorists from entering the United States or whether it would fully address the vulnerabilites shown by our work.

Over the past two decades—from 1991 through 2012—there was a substantial increase in the number of FLSA lawsuits filed, with most of the increase occurring in the period from fiscal year 2001 through 2012. As shown in figure 1, in 1991, 1,327 lawsuits were filed; in 2012, that number had increased over 500 percent to 8,148. FLSA lawsuits can be filed by DOL on behalf of employees or by private individuals. Private FLSA lawsuits can either be filed by individuals or on behalf of a group of individuals in a type of lawsuit known as a “collective action”. The court will generally certify whether a lawsuit meets the requirements to proceed as a collective action. The court may deny certification to a proposed collective action or decertify an existing collective action if the court determines that the plaintiffs are not “similarly situated” with respect to the factual and legal issues to be decided. In such cases, the court may permit the members to individually file private FLSA lawsuits. Collective actions can serve to reduce the burden on courts and protect plaintiffs by reducing costs for individuals and incentivizing attorneys to represent workers in pursuit of claims under the law. They may also protect employers from facing the burden of many individual lawsuits; however, they can also be costly to employers because they may result in large amounts of damages. For fiscal year 2012, we found that an estimated 58 percent of the FLSA lawsuits filed in federal district court were filed individually, and 40 percent were filed as collective actions. An estimated 16 percent of the FLSA lawsuits filed in fiscal year 2012 (about a quarter of all individually-filed lawsuits), however, were originally part of a collective action that was decertified (see fig. 2). Federal courts in most states experienced increases in the number of FLSA lawsuits filed between 1991 and 2012, but large increases were concentrated in a few states, including Florida, New York, and Alabama. Of all FLSA lawsuits filed since 2001, more than half were filed in these three states, and in 2012, about 43 percent of all FLSA lawsuits were filed in Florida (33 percent) or New York (10 percent). In both Florida and New York, growth in the number of FLSA lawsuits filed was generally steady, while changes in Alabama involved sharp increases in fiscal years 2007 and 2012 with far fewer lawsuits filed in other years (see fig. 3). Each spike in Alabama coincided with the decertification of at least one large collective action, which likely resulted in multiple individual lawsuits. For example, in fiscal year 2007, 2,496 FLSA lawsuits (about one-third of all FLSA lawsuits) were filed in Alabama, up from 48 FLSA lawsuits filed in Alabama in fiscal year 2006. In August 2006, a federal district court in Alabama decertified a collective action filed by managers of Dollar General stores. In its motion to decertify, the defendant estimated the collective to contain approximately 2,470 plaintiffs. In fiscal year 2012, an estimated 97 percent of FLSA lawsuits were filed against private sector employers, and an estimated 57 percent of FLSA lawsuits were filed against employers in four industry areas: accommodations and food services; manufacturing; construction; and “other services”, which includes services such as laundry services, domestic work, and nail salons. Almost one-quarter of all FLSA lawsuits filed in fiscal year 2012 (an estimated 23 percent) were filed by workers in the accommodations and food service industry, which includes hotels, restaurants, and bars. At the same time, almost 20 percent of FLSA lawsuits filed in fiscal year 2012 were filed by workers in the manufacturing industry. In our sample, most of the lawsuits involving the manufacturing industry were filed by workers in the automobile manufacturing industry in Alabama, and most were individual lawsuits filed by workers who were originally part of one of two collective actions that had been decertified. FLSA lawsuits filed in fiscal year 2012 included a variety of different types of alleged FLSA violations and many included allegations of more than one type of violation. An estimated 95 percent of the FLSA lawsuits filed in fiscal year 2012 alleged violations of the FLSA’s overtime provision, which requires certain types of workers to be paid at one and a half times their regular rate for any hours worked over 40 during a workweek. Almost one-third of the lawsuits contained allegations that the worker or workers were not paid the federal minimum wage. We also identified more specific allegations about how workers claimed their employers violated the FLSA. For example, nearly 30 percent of the lawsuits contained allegations that workers were required to work “off-the-clock” so that they would not need to be paid for that time. In addition, the majority of lawsuits contained other FLSA allegations, such as that the employer failed to keep proper records of hours worked by the employees, failed to post or provide information about the FLSA, as required, or violated requirements pertaining to tipped workers such as restaurant wait staff (see fig. 4). An estimated 14 percent of FLSA lawsuits filed in federal district court in fiscal year 2012 included an allegation of retaliation. limitations for filing an FLSA claim is 2 years (3 years if the violation is “willful”), New York state law provides a 6-year statute of limitations for filing state wage and hour lawsuits. A longer statute of limitations may increase potential financial damages in such cases because more pay periods are involved and because more workers may be involved. Adding a New York state wage and hour claim to an FLSA lawsuit in federal court could expand the potential damages, which, according to several stakeholders, may influence decisions about where and whether to file a lawsuit. In addition, according to multiple stakeholders we interviewed, because Florida lacks a state overtime law, those who wish to file a lawsuit seeking overtime compensation generally must do so under the FLSA. Ambiguity in applying the law and regulations. Ambiguity in applying the FLSA statute or regulations—particularly the exemption for executive, administrative, and professional workers—was cited as a factor by a number of stakeholders. In 2004, DOL issued a final rule updating and revising its regulations in an attempt to clarify this exemption and provided guidance about the changes, but a few stakeholders told us there is still significant confusion among employers about which workers should be classified as exempt under these categories. Industry trends. As mentioned previously, about one-quarter of FLSA lawsuits filed in fiscal year 2012 were filed by workers in the accommodations and food service industry. Nationally, service jobs, including those in the leisure and hospitality industry, increased from 2000 to 2010, while most other industries lost jobs during that period. Federal judges in New York and Florida attributed some of the concentration of such litigation in their districts to the large number of restaurants and other service industry jobs in which wage and hour violations are more common than in some other industries. An academic who focuses on labor and employment relations told us that changes in the management structure in the retail and restaurant industry may have contributed to the rise in FLSA lawsuits. For example, frontline managers who were once exempt have become nonexempt as their nonmanagerial duties have increased as a portion of their overall duties. We also reviewed DOL’s annual process for determining how to target its enforcement and compliance assistance resources. The agency targets industries for enforcement that, according to its recent enforcement data, have a higher likelihood of FLSA violations, along with other factors. In addition, according to WHD internal guidance, the agency’s annual enforcement plans should contain strategies to engage related stakeholders in preventing such violations. For example, if a WHD office plans to investigate restaurants to identify potential violations of the FLSA, it should also develop strategies to engage restaurant trade associations about FLSA-related issues so that these stakeholders can help bring about compliance in the industry. However, DOL does not compile and analyze relevant data, such as information on the subjects or the number of requests for assistance it receives from employers and workers, to help determine what additional or revised guidance employers may need to help them comply with the In developing its guidance on the FLSA, WHD does not use a FLSA.systematic approach that includes analyzing this type of data. In addition, WHD does not have a routine, data-based process for assessing the adequacy of its guidance. For example, WHD does not analyze trends in the types of FLSA-related questions it receives. This type of information could be used to develop new guidance or improve the guidance WHD provides to employers and workers on the requirements of the FLSA. Because of these issues, we recommended that WHD develop a systematic approach for identifying areas of confusion about the requirements of the FLSA that contribute to possible violations and improving the guidance it provides to employers and workers in those areas. This approach could include compiling and analyzing data on requests for guidance on issues related to the FLSA, and gathering and using input from FLSA stakeholders or other users of existing guidance through an advisory panel or other means. While improved DOL guidance on the FLSA might not affect the number of lawsuits filed, it could increase the efficiency and effectiveness of its efforts to help employers voluntarily comply with the FLSA. A clearer picture of the needs of employers and workers would allow WHD to more efficiently design and target its compliance assistance efforts, which may, in turn, result in fewer FLSA violations. WHD agreed with our recommendation that the agency develop a systematic approach for identifying and considering areas of confusion that contribute to possible FLSA violations to help inform the development and assessment of its guidance. WHD stated that it is in the process of developing systems to further analyze trends in communications received from stakeholders such as workers and employers and will include findings from this analysis as part of its process for developing new or revised guidance. In closing, while there has been a significant increase in FLSA lawsuits over the last decade, it is difficult to determine the reasons for the increase. It could suggest that FLSA violations have become more prevalent, that FLSA violations have been reported and pursued more frequently than before, or a combination of the two. It is also difficult to determine the effect that the increase in FLSA lawsuits has had on employers and their ability to hire workers. However, the ability of workers to bring such suits is an integral part of FLSA enforcement because of the limits on DOL’s capacity to ensure that all employers are in compliance with the FLSA. Chairman Walberg, Ranking Member Courtney, and members of the Committee, this completes my prepared statement. I would be happy to respond to any questions you may have. For further information regarding this statement, please contact Andrew Sherrill at (202) 512-7215 or sherrilla@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Betty Ward-Zukerman (Assistant Director), Catherine Roark (Analyst in Charge), David Barish, James Bennett, Sarah Cornetto, Joel Green, Kathy Leslie, Ying Long, Sheila McCoy, Jean McSween, and Amber Yancey-Carroll. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The FLSA sets federal minimum wage and overtime pay requirements applicable to millions of U.S. workers and allows workers to sue employers for violating these requirements. Questions have been raised about the effect of FLSA lawsuits on employers and workers and about WHD's enforcement and compliance assistance efforts as the number of lawsuits has increased. This statement examines what is known about the number of FLSA lawsuits filed and how WHD plans its FLSA enforcement and compliance assistance efforts. It is based on the results of a previous GAO report issued in December 2013. In conducting the earlier work, GAO analyzed federal district court data from fiscal years 1991 to 2012 and reviewed selected documents from a representative sample of lawsuits filed in federal district court in fiscal year 2012. GAO also reviewed DOL's planning and performance documents, interviewed DOL officials, as well as stakeholders, including federal judges, plaintiff and defense attorneys who specialize in FLSA cases, officials from organizations representing workers and employers, and academics. Substantial increases occurred over the last decade in the number of civil lawsuits filed in federal district court alleging violations of the Fair Labor Standards Act of 1938, as amended (FLSA). Federal courts in most states experienced increases in the number of FLSA lawsuits filed, but large increases were concentrated in a few states, including Florida and New York. Many factors may contribute to this general trend; however, the factor cited most often by stakeholders GAO interviewed—including attorneys and judges—was attorneys' increased willingness to take on such cases. In fiscal year 2012, an estimated 97 percent of FLSA lawsuits were filed against private sector employers, often from the accommodations and food services industry, and 95 percent of the lawsuits filed included allegations of overtime violations. The Department of Labor's Wage and Hour Division (WHD) has an annual process for planning how it will target its enforcement and compliance assistance resources to help prevent and identify potential FLSA violations. In planning its enforcement efforts, WHD targets industries that, according to its recent enforcement data, have a higher likelihood of FLSA violations. WHD, however, does not have a systematic approach that includes analyzing relevant data, such as the number of requests for assistance it receives from employers and workers, to develop its guidance, as recommended by best practices previously identified by GAO. In addition, WHD does not have a routine, data-based process for assessing the adequacy of its guidance. For example, WHD does not analyze trends in the types of FLSA-related questions it receives from employers or workers. According to plaintiff and defense attorneys GAO interviewed, more FLSA guidance from WHD would be helpful, such as guidance on how to determine whether certain types of workers are exempt from the overtime pay and other requirements of the FLSA. In its December 2013 report, GAO recommended that the Secretary of Labor direct the WHD Administrator to develop a systematic approach for identifying and considering areas of confusion that contribute to possible FLSA violations to help inform the development and assessment of its guidance. WHD agreed with the recommendation and described its plans to address it.

In an effort to promote and achieve various U.S. foreign policy objectives, Congress has expanded trade preference programs in number and scope over the past 3 decades. The purpose of these programs is to foster economic development through increased trade with qualified beneficiary countries while not harming U.S. domestic producers. Trade preference programs extend unilateral tariff reductions to over 130 developing countries. Currently, the United States offers the Generalized System of Preferences (GSP) and three regional programs, the Caribbean Basin Initiative (CBI), the Andean Trade Preference Act (ATPA), and the African Growth and Opportunity Act (AGOA). Special preferences for Haiti became part of CBI with enactment of the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act in December 2006. The regional programs cover additional products but have more extensive criteria for participation than the GSP program. Eight agencies have key roles in administering U.S. trade preference programs. Led by the United States Trade Representative (USTR), they include the Departments of Agriculture, Commerce, Homeland Security, Labor, State, and Treasury, as well as the U.S. International Trade Commission (ITC). U.S. imports from countries benefiting from U.S. preference programs have increased significantly over the past decade. Total U.S. preference imports grew from $20 billion in 1992 to $110 billion in 2008. Most of this growth in U.S. imports from preference countries has taken place since 2000. This accelerated growth suggests an expansionary effect of increased product coverage and liberalized rules of origin for least- developed countries (LDC) under GSP in 1996 and for African countries under AGOA in 2000. In particular, much of the growth since 2000 is due to imports of petroleum from certain oil producing nations in Africa, accounting for 79.5 percent of total imports from Sub-Saharan Africa in 2008. For example, in that same year, U.S. imports from the oil producing countries of Nigeria grew by 16.2 percent, Angola by 51.2 percent, and the Republic of Congo by 65.2 percent. There is also evidence that leading suppliers under U.S. preference programs have “arrived” as global exporters. For example, based on a World Trade Organization (WTO) study in 2007, the three leading non-fuel suppliers of U.S. preference imports—India, Thailand, and Brazil—were among the top 20 exporters in the world, and were also major suppliers to the U.S. market. Exports from these three countries also grew faster than world exports as a whole. However, these countries have not reached World Bank “high income” level criteria, as they range from “low” to “upper middle” levels of income. GSP—the longest standing U.S. preference program—expires December 31, 2009, as do ATPA benefits. At the same time, legislative proposals to provide additional, targeted benefits for the poorest countries are pending. Preference programs entail a number of difficult policy trade-offs. For example, the programs are designed to offer duty-free access to the U.S. market to increase beneficiary trade, but only to the extent that access does not harm U.S. industries. U.S. preference programs provide duty-free treatment for over half of the 10,500 U.S. tariff lines, in addition to those that are already duty-free on a most favored nation basis. But they also exclude many other products from duty-free status, including some that developing countries are capable of producing and exporting. GAO’s analysis showed that notable gaps in preference program coverage remain, particularly in agricultural and apparel products. For 48 GSP-eligible countries, more than three-fourths of the value of U.S. imports that are subject to duties (i.e., are dutiable) are not included in the programs. For example, just 1 percent of Bangladesh’s dutiable exports to the United States and 4 percent of Pakistan’s are eligible for GSP. Although regional preference programs tend to have more generous coverage, they sometimes feature “caps” on the amount of imports that can enter duty- free, which may significantly limit market access. Imports subject to caps under AGOA include certain meat products, a large number of dairy products, many sugar products, chocolate, a range of prepared food products, certain tobacco products, and groundnuts (peanuts), the latter being of particular importance to some African countries. A second, related, trade-off involves deciding which developing countries can enjoy particular preferential benefits. A few LDCs in Asia are not included in the U.S. regional preference programs, although they are eligible for GSP-LDC benefits. Two of these countries—Bangladesh and Cambodia—have become major exporters of apparel to the United States and have complained about the lack of duty-free access for their goods. African private-sector representatives have raised concerns that giving preferential access to Bangladesh and Cambodia for apparel might endanger the nascent African apparel export industry that has grown up under AGOA. Certain U.S. industries have joined African nations in opposing the idea of extending duty-free access for apparel from these countries, arguing these nations are already so competitive in exporting to the United States that in combination they surpass U.S. free trade agreement partners Mexico and those in CAFTA, as well as those in the Andean/AGOA regions. This trade-off concerning what countries to include also involves decisions regarding the graduation of countries or products from the programs. The original intention of preference programs was to provide temporary trade advantages to particular developing countries, which would eventually become unnecessary as countries became more competitive. Specifically, the GSP program has mechanisms to limit duty-free benefits by “graduating” countries that are no longer considered to need preferential treatment, based on income and competitiveness criteria. Since 1989, at least 28 countries have been graduated from GSP, mainly as a result of “mandatory” graduation criteria such as high income status or joining the European Union. Five countries in the Central American and Caribbean region were recently removed from GSP and CBI/CBTPA when they entered into free trade agreements with the United States. In addition to country graduation, the United States GSP program also includes a process for ending duty-free access for individual products from a given country by means of import ceilings—Competitive Needs Limitations (CNL). These ceilings are reached when eligible products from GSP beneficiaries exceed specified value and import market share thresholds (LDCs and AGOA beneficiaries are exempt). Amendments to the GSP in 1984 gave the President the power to issue (or revoke) waivers for CNL thresholds under certain circumstances, for example through a petition from an interested party, or when total U.S. imports from all countries of a product are small or “de minimis.” In 2006 Congress passed legislation affecting when the President should revoke certain CNL waivers for so called “super competitive” products. In 2007, the President revoked eight CNL waivers. Policymakers face a third trade-off in setting the duration of preferential benefits in authorizing legislation. Preference beneficiaries and U.S. businesses that import from them agree that longer and more predictable renewal periods for program benefits are desirable. Private-sector and foreign government representatives have stated that short program renewal periods discourage longer-term productive investments that might be made to take advantage of preferences, such as factories or agribusiness ventures. Members of Congress have recognized this argument with respect to Africa and, in December 2006, Congress renewed AGOA’s third-country fabric provisions until 2012 and AGOA’s general provisions until 2015. However, some U.S. officials believe that periodic program expirations can be useful as leverage to encourage countries to act in accordance with U.S. interests such as global and bilateral trade liberalization. Furthermore, making preferences permanent may deepen resistance to U.S. calls for developing country recipients to lower barriers to trade in their own markets. Global and bilateral trade liberalization is a primary U.S. trade policy objective, based on the premise that increased trade flows will support economic growth for the United States and other countries. Spokesmen for countries that benefit from trade preferences have told us that any agreement reached under the Doha round of global trade talks at the WTO must, at a minimum, provide a significant transition period to allow beneficiary countries to adjust to the loss of preferences. GAO found that preference programs have proliferated over time and have become increasingly complex, which has contributed to a lack of systematic review. In response to differing statutory requirements, agencies involved in implementing trade preferences pursue different approaches to monitoring the various criteria set for these programs. We observed advantages to each approach but individual program reviews appeared disconnected and resulted in gaps. For example, some countries that passed review under regional preference programs were later subject to GSP complaints. Moreover, we found that there was little to no reporting on the impact of these programs. To address these issues, GAO recommended that USTR periodically review beneficiary countries, in particular those that have not been considered under GSP or regional programs. Additionally, we recommended that USTR should periodically convene relevant agencies to discuss the programs jointly. In our March 2008 report, we also noted that even though there is overlap in various aspects of trade preference programs, Congress generally considers these programs separately, partly because they have disparate termination dates. As a result, we suggested that Congress should consider whether trade preference programs’ review and reporting requirements may be better integrated to facilitate evaluating progress in meeting shared economic development goals. In response to the recommendations discussed above, USTR officials told us that the relevant agencies will meet at least annually to consider ways to improve program administration, to evaluate the programs’ effectiveness jointly, and to identify any lessons learned. USTR has also changed the format of its annual report to discuss the preference programs in one place. In addition, we believe that Congressional hearings in 2007 and 2008 and again today are responsive to the need to consider these programs in an integrated fashion. In addition to the recommendations based on GAO analysis, we also solicited options from a panel of experts convened by GAO in June 2009 to discuss ways to improve the competitiveness of the textile and apparel sector in AGOA beneficiary countries. While the options were developed in the context of AGOA, many of these may be applicable to trade preferences programs in general. Align Trade Capacity Building with Trade Preferences Programs: Many developing countries have expressed concern about their inability to take advantage of trade preferences because they lack the capacity to participate in international trade. AGOA is the only preference program for which authorizing legislation refers to trade capacity building assistance; however, funding for this type of assistance is not provided under the Act. In the course of our research on the textile and apparel inputs industry in Sub-Saharan African countries, many experts we consulted considered trade capacity building a key component for improving the competitiveness of this sector. Modify Rules of Origin among Trade Preference Program Beneficiaries and Free Trade Partners: Some African governments and industry representatives of the textile and apparel inputs industry in Sub-Saharan African countries suggested modifying rules of origin provisions under other U.S. trade preference programs or free trade agreements to provide duty-free access for products that use AGOA textile and apparel inputs. Similarly, they suggested simplifying AGOA rules of origin to allow duty-free access for certain partially assembled apparel products with components originating outside the region. Create Non-Punitive and Voluntary Incentives: Some of the experts we consulted believe that the creation of non-punitive and voluntary incentives to encourage the use of inputs from the United States or its trade preference partners could stimulate investment in beneficiary countries. One example of the incentives discussed was the earned import allowance programs currently in use for Haiti and the Dominican Republic. Such an incentive program allows producers to export certain amounts of apparel to the U.S., duty free, made from third-country fabric, provided they import specified volumes of U.S. fabric. Another proposal put forth by industry representatives was for a similar “duty credit” program for AGOA beneficiaries. A simplified duty credit program would create a non-punitive incentive for use of African regional fabric. For example, a U.S. firm that imports jeans made with African origin denim would earn a credit to import a certain amount of jeans from Bangladesh, duty free. However, some experts indicated that the application of these types of incentives should be considered in the context of each trade preference program, as they have specific differences that may not make them applicable across preference programs. While these options were suggested by experts in the context of a discussion on the African Growth and Opportunity Act, many of these options may be helpful in considering ways to further improve the full range of preference programs as many GSP LDCs face many of the same challenges as the poorer African nations. Some of the options presented would require legislative action while others could be implemented administratively. Mr. Chairman, thank you for the opportunity to summarize the work GAO has done on the subject of preference programs. I would be happy to answer any questions that you or other members of the subcommittee may have. For further information on this testimony, please contact Loren Yager at (202) 512-4347, or by e-mail at yagerl@gao.gov. Juan Gobel, Assistant Director; Gezahegne Bekele; Ken Bombara; Karen Deans; Francisco Enriquez; R. Gifford Howland; Ernie Jackson; and Brian Tremblay made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

U.S. trade preference programs promote economic development in poorer nations by providing duty-free export opportunities in the United States. The Generalized System of Preferences, Caribbean Basin Initiative, Andean Trade Preference Act, and African Growth and Opportunity Act unilaterally reduce U.S. tariffs for many products from over 130 countries. However, two of these programs expire partially or in full this year, and Congress is exploring options as it considers renewal. This testimony describes the growth in preference program imports, identifies policy trade-offs, and summarizes the Government Accountability Office (GAO) recommendations and options suggested by a panel of experts on the African Growth and Opportunity Act (AGOA). The testimony is based on studies issued in September 2007, March 2008, and August 2009. For those studies, GAO analyzed trade data, reviewed trade literature and program documents, interviewed U.S. officials, did fieldwork in nine countries, and convened a panel of experts. Total U.S. preference imports grew from $20 billion in 1992 to $110 billion in 2008, with most of this growth taking place since 2000. The increases from preference program countries primarily reflect the addition of new eligible products, increased petroleum imports from some African countries, and the rapid growth of exports from countries such as India, Thailand, and Brazil. Preference programs give rise to three critical policy trade-offs. First, opportunities for beneficiary countries to export products duty free must be balanced against U.S. industry interests. Some products of importance to developing countries, notably agriculture and apparel, are ineligible by statute as a result. Second, some developing countries, such as Bangladesh and Cambodia, are not included in U.S. regional preference programs; however, there is concern that they are already competitive in marketing apparel to the United States and that giving them greater duty-free access could harm the apparel industry in Africa and elsewhere. Third, Congress faces a trade-off between longer preference program renewals, which may encourage investment, and shorter renewals, which may provide leverage to encourage countries to act in accordance with U.S. interests such as trade liberalization. GAO reported in March 2008 that preference programs have proliferated and become increasingly complex, which has contributed to a lack of systematic review. Moreover, we found that there was little to no reporting on the impact of these programs. In addition, GAO solicited options from a panel of experts in June 2009 for improving the competitiveness of the textile and apparel sector in AGOA countries. Options they suggested included aligning trade capacity building with trade preference programs, modifying rules of origin to facilitate joint production among trade preference program beneficiaries and free trade partners, and creating non-punitive and voluntary incentives to encourage the use of inputs from the United States or its trade preference partners to stimulate investment in beneficiary countries.

Annual vaccination is the primary method for preventing influenza, which is associated with serious illness, hospitalizations, and even deaths among people at high risk for complications of the disease, such as pneumonia. Senior citizens are particularly at risk, as are individuals with chronic medical conditions. The Centers for Disease Control and Prevention (CDC) estimates that influenza epidemics contribute to approximately 20,000 deaths and 110,000 hospitalizations in the United States each year. Here in Oregon, and throughout the nation, influenza and pneumonia rank as the fifth leading cause of death among persons 65 years of age and older. Producing the influenza vaccine is a complex process that involves growing viruses in millions of fertilized chicken eggs. This process, which requires several steps, generally takes at least 6 to 8 months from January through August each year. Each year’s vaccine is made up of three different strains of influenza viruses, and, typically, each year one or two of the strains is changed to better protect against the strains that are likely to be circulating during the coming flu season. The Food and Drug Administration (FDA) and its advisory committee decide which strains to include based on CDC surveillance data, and FDA also licenses and regulates the manufacturers that produce the vaccine. Only three manufacturers—two in the United States and one in the United Kingdom—produced the vaccine used in the United States during the 2000-01 flu season. Like other pharmaceutical products, flu vaccine is sold to thousands of purchasers by manufacturers, numerous medical supply distributors, and other resellers such as pharmacies. These purchasers provide flu shots at physicians’ offices, public health clinics, nursing homes, and less traditional locations such as workplaces and various retail outlets. CDC has recommended October through mid-November as the best time to receive a flu shot because the flu season generally peaks from December through early March. However, if flu activity peaks late, as it has in 10 of the past 19 years, vaccination in January or later can still be beneficial. To address our study questions, we interviewed officials from the Department of Health and Human Services (HHS), including CDC, FDA, and the Health Care Financing Administration (HCFA), as well as flu vaccine manufacturers, distributors, physician associations, flu shot providers, and others. We surveyed 58 physician group practices nationwide to learn about their experiences and interviewed health department officials in all 50 states. Although the eventual supply of vaccine in the 2000-01 flu season was about the same as the previous year’s—about 78 million doses— production delays of about 6 to 8 weeks limited the amount that was available during the peak vaccination period. During the period when supply was limited and demand was higher, providers who wanted to purchase vaccine from distributors with available supplies often faced rapidly escalating prices. By December, as vaccine supply increased and demand dropped, prices declined. Last fall, fewer than 28 million doses were available by the end of October, compared with more than 70 million doses available by that date in 1999. Two main factors contributed to last year’s delay. The first was that two manufacturers had unanticipated problems growing one of the two new influenza strains introduced into the vaccine for the 2000-01 flu season. Because manufacturers must produce a vaccine that includes all three strains selected for the year, delivery was delayed until sufficient quantities of this difficult strain could be produced. The second factor was that two of the four manufacturers producing vaccine the previous season shut down parts of their facilities because of FDA concerns about compliance with good manufacturing practices, including issues related to safety and quality control. One of these manufacturers reopened its facilities and eventually shipped its vaccine, although much later than usual. The other, which had been expected to produce 12 to 14 million doses, announced in September 2000 that it would cease production altogether and, as a result, supplied no vaccine. These vaccine production and compliance problems did not affect every manufacturer to the same degree. Consequently, when a purchaser received vaccine depended to some extent on which manufacturer’s vaccine it had ordered. Purchasers that contracted only with the late- shipping manufacturers were in particular difficulty. For example, health departments and other public entities in 36 states, including Oregon, banded together under a group purchasing contract and ordered nearly 2.6 million doses from the manufacturer that, as it turned out, experienced the greatest delays from production difficulties. Some of these public entities, which ordered vaccine for high-risk people in nursing homes or clinics, did not receive most of their vaccine until December, according to state health officials. Because supply was limited during the usual vaccination period, distributors and others who had supplies of the vaccine had the ability— and the economic incentive—to sell their supplies to the highest bidders rather than filling lower-priced orders they had already received. Most of the physician groups and state health departments we contacted reported that they waited for delivery of their original lower-priced orders, which often arrived in several partial shipments from October through December or later. Those who purchased vaccine in the fall found themselves paying much higher prices. For example, one physicians’ practice in our survey ordered flu vaccine from a supplier in April 2000 at $2.87 per dose. When none of that vaccine had arrived by November 1, the practice placed three smaller orders in November with a different supplier at the escalating prices of $8.80, $10.80, and $12.80 per dose. On December 1, the practice ordered more vaccine from a third supplier at $10.80 per dose. The four more expensive orders were delivered immediately, before any vaccine had been received from the original April order. Demand for influenza vaccine dropped as additional vaccine became available after the prime period for vaccinations had passed. In all, roughly one-third of the total distribution was delivered in December or later. Part of this additional supply resulted from actions taken by CDC in September, when it appeared there could be a shortfall in production. At that point, CDC contracted with one of the manufacturers to extend production into late December for 9 million additional doses. Despite efforts by CDC and others to encourage people to seek flu shots later in the season, providers still reported a drop in demand in December. The unusually light flu season also probably contributed to the lack of interest. Had a flu epidemic hit in the fall or early winter, the demand for influenza vaccine would likely have remained high. As a result of the waning demand, manufacturers and distributors reported having more vaccine than they could sell. Manufacturers reported shipping about 9 percent less than in 1999, and more than 7 million of the 9 million additional doses produced under the CDC contract were never shipped at all. In addition, some physicians’ offices, employee health clinics, and other organizations that administered flu shots reported having unused doses in December and later. In a typical year, there is enough vaccine available in the fall to give a flu shot to anyone who wants one. However, when the supply is not sufficient, there is no mechanism currently in place to establish priorities and distribute flu vaccine first to high-risk individuals. Indeed last year, mass immunizations in nonmedical settings, normally undertaken to promote vaccinations, created considerable controversy as healthy persons received vaccine in advance of those at high risk. In addition, manufacturers and distributors that tried to prioritize their vaccine shipments encountered difficulties doing so. Flu shots are generally widely available in a variety of settings, ranging from the usual physicians’ offices, clinics, and hospitals to retail outlets such as drugstores and grocery stores, workplaces, and other convenience locations. Millions of individuals receive flu shots through mass immunization campaigns in nonmedical settings, where organizations, such as visiting nurse agencies under contract, administer the vaccine. The widespread availability of flu shots may help increase immunization rates overall, but it generally does not lend itself to targeting vaccine to high- priority groups. The timing of some of the mass immunization campaigns last fall generated a great deal of controversy. Some physicians and public health officials were upset when their local grocery stores, for example, were offering flu shots to everyone when they, the health care providers, were unable to obtain vaccine for their high-risk patients. Examples of these situations include the following: A radio station in Colorado sponsored a flu shot and a beer for $10 at a local restaurant and bar—at the same time that the public health department and the community health center did not have enough vaccine. One grocery store chain in Minnesota participated in a promotion offering a discounted flu shot for anyone who brought in three soup can labels. Flu shots were available for purchase to all fans attending a professional football game. CDC took some steps to try to manage the anticipated vaccine delay by issuing recommendations for vaccinating high-risk individuals first. In July 2000, CDC recommended that mass immunization campaigns, such as those open to the public or to employee groups, be delayed until early to mid-November. CDC issued more explicit voluntary guidelines in October 2000, which stated that vaccination efforts should be focused on persons aged 65 and older, pregnant women, those with chronic health conditions that place them at high risk, and health care workers. The October guidelines also stated that while efforts should be made to increase participation in mass immunization campaigns by high-risk persons and their household contacts, other persons should not be turned away. Some organizations that conducted mass immunizations said they generally did not screen individuals who came for flu shots in terms of their risk levels. Some said they tried to target high-risk individuals and provided information on who was at high risk, but they let each person decide whether to receive a shot. Their perspective was that the burden lies with the individual to determine his or her own level of risk, not with the provider. Moreover, they said that the convenience locations provide an important option for high-risk individuals as well as others. Health care providers in both traditional and nontraditional settings told us that it is difficult to turn someone away when he or she requests a flu shot. The manufacturers and distributors we interviewed reported that it was difficult to determine which of their purchasers should receive priority vaccine deliveries in response to CDC’s recommendations to vaccinate high-risk individuals first. They did not have plans in place to prioritize deliveries to target vaccine to high-risk individuals because there generally had been enough vaccine in previous years and thus there had been little practical need for this type of prioritization. When they did try to identify purchasers serving high-risk individuals, the manufacturers and distributors often found they lacked sufficient information about their customers to make such decisions, and they also were aware that all types of vaccine providers were likely to serve at least some high-risk individuals. As a result, manufacturers reported using various approaches in distributing their vaccine, including making partial shipments to all purchasers as a way to help ensure that more high-risk persons could be vaccinated. Others made efforts to ship vaccine first to nursing homes, where they could be identified, and to physicians’ offices. All of the manufacturers and distributors we talked to said that once they distributed the vaccine it would be up to the purchasers and health care providers to target the available vaccine to high-risk groups. Immunization statistics are not yet available to show how successful these ad hoc distribution strategies may have been in reaching high-risk groups, but there may be cause for concern. Some state health officials reported that nursing homes often purchase their flu vaccine from local pharmacies, and some distributors considered pharmacies to be lower priority for deliveries. In addition, many physicians reported that they felt they did not receive priority for vaccine delivery, even though nearly two- thirds of seniors—one of the largest high-risk groups—generally get their flu shots in medical offices. The experience of the 58 physicians’ practices we surveyed seemed consistent with this reported lack of priority: as a group, they received their shipments at about the same delayed rate that vaccine was generally available on the market. Ensuring an adequate and timely supply of vaccine, already a difficult task given the complex manufacturing process, has become even more difficult as the number of manufacturers has decreased. Now, a production delay or shortfall experienced by even one of the three remaining manufacturers can significantly affect overall vaccine availability. Looking back, we are fortunate that the 2000-01 flu season arrived late and was less severe than normal because we lacked the vaccine last October and November to prepare for it. Had the flu hit early with normal or greater severity, the consequences could have been serious for the millions of Americans who were unable to get their flu shots on time. This raises the question of what more can be done to better prepare for possible vaccine delays and shortages in the future. We need to recognize that flu vaccine production and distribution are private-sector responsibilities, and as such options are somewhat limited. HHS has no authority to directly control flu vaccine production and distribution, beyond FDA’s role in regulating good manufacturing practices and CDC’s role in encouraging appropriate public health actions. Working within these constraints, HHS undertook several initiatives in response to the problems experienced during the 2000-01 flu season. For example, the National Institutes of Health, working with FDA and CDC, conducted a clinical trial on the feasibility of using smaller doses of vaccine for healthy adults. If smaller doses offer acceptable levels of protection, this would be one way to stretch limited vaccine supplies. Final results from this work are expected in fall 2001. In addition, for the upcoming flu season CDC and its advisory committee extended the optimal period for getting a flu shot until the end of November, to encourage more people to get shots later in the season. HHS is also working to complete a plan for a national response to a severe worldwide influenza outbreak, called a pandemic. While the plan itself would likely be applied only in cases of public health emergencies, we believe that the advance preparations by manufacturers, distributors, physicians, and public health officials to implement the plan could provide a foundation to assist in dealing with less severe problems, such as those experienced last year. We believe it would be helpful for HHS agencies to take additional actions in three areas. Progress in these areas could prove valuable in managing future flu vaccine disruptions and targeting vaccine to high-risk individuals. First, because vaccine production and distribution are private- sector responsibilities, CDC needs to work with a wide range of private entities to prepare for potential problems in the future. CDC can take an ongoing leadership role in organizing and supporting efforts to bring together all interested parties to formulate voluntary guidelines for vaccine distribution in the event of a future vaccine delay or shortage. In March 2001, CDC co-sponsored a meeting with the American Medical Association that brought together public health officials, vaccine manufacturers, distributors, physicians, and other providers to discuss flu vaccine distribution, including ways to target vaccine to high-risk groups in the event of a future supply disruption. This meeting was a good first step, and continued efforts should be made to achieve consensus among the public- and private-sector entities involved in vaccine production, distribution, and administration.

Until the 2001 flu season, the production and distribution of influenza vaccine generally went smoothly. Last year, however, several people reported that they wanted but could not get flu shots. In addition, physicians and public health departments could not provide shots to high-risk patients in their medical offices and clinics because they had not received vaccine they ordered many months in advance, or because they were being asked to pay much higher prices for vaccine in order to get it right away. At the same time, there were reports that providers in other locations, even grocery stores and restaurants, were offering flu shots to everyone--including younger, healthier people who were not at high risk. This testimony discusses the delays in production, distribution, and pricing of the 2000-2001 flu vaccine. GAO found that manufacturing difficulties during the 2000-2001 flu season resulted in an overall delay of about six to eight weeks in shipping vaccine to most customers. This delay created an initial shortage and temporary price spikes. There is no system in place to ensure that high-risk people have priority for receiving flu shots when supply is short. Because vaccine purchases are mainly done in the private sector, federal actions to help mitigate any adverse effects of vaccine delays or shortages need to rely to a great extent on collaboration between the public and private sectors.

Mr. Chairman and Members of the Subcommittee: We are pleased to be here today to discuss our report on the efforts of the Postal Service, the four major labor unions, and the three management associations to improve employee working conditions and overall labor-management relations. Our recently issued report provides updated information related to our September 1994 report, which identified various labor-management relations problems in the Postal Service and made recommendations for addressing such problems. In our most recent report, we discussed the challenges that these eight organizations continue to face in attempting to improve labor-management relations. Specifically, this report provides information on three topics: (1) the extent to which the Service, the four unions, and the three management associations have progressed in addressing persistent labor-management relations problems since our 1994 report was issued; (2) the implementation of various improvement efforts, referred to in the report as initiatives, some of which were intended to help these eight organizations deal with the problems that we identified in our 1994 report; and (3) approaches that might help the eight organizations improve labor-management relations. which the Service was using a third party to serve as a facilitator in labor-management discussions, which we recommended in our 1994 report. Since our 1994 report was issued, the Postal Service has improved its overall financial performance, as well as its delivery of First-Class Mail. However, little progress has been made in improving persistent labor-management relations problems. In many instances, such problems were caused by autocratic management styles, the sometimes adversarial relationships between postal management and union leadership at the local and national levels, and an inappropriate and inadequate performance management system. Labor-management problems make it more difficult for these organizations to work together to improve the Service’s performance so it can remain competitive in today’s dynamic and competitive communications market. In recent years, we have found that the sometimes adversarial relationships between postal management and union leadership at national and local levels have generally persisted, as characterized by (1)a continued reliance on arbitration by three of the four major unions to settle their contract negotiation impasses with the Service, also known as interest arbitration; (2)a significant rise not only in the number of grievances that have been appealed to higher levels but also in the number of those awaiting arbitration; and (3)until recently, the inability of the Service and the other seven organizations to convene a labor-management relations summit to discuss problems and explore solutions. According to various postal, union, and management association officials whom we interviewed, the problems persist primarily because the parties involved cannot agree on common approaches for addressing these problems. This, in turn, has prevented the Service and the other seven organizations from sustaining the intended benefits of specific improvement efforts that could help improve the postal workroom climate. I would now like to discuss these problems in more detail. Regarding the use of interest arbitration, as discussed in our 1994 report, contract negotiations occur nationally between the Service and the four labor unions every 3 or 4 years. Since as far back as 1978, interest arbitration has sometimes been used to resolve bargaining deadlocks in contract negotiations by APWU, NALC, and Mail Handlers. The most recent negotiations occurred for contracts expiring in November 1994 for those three unions. The issues at stake were similar to those raised in previous negotiations, which included the unions’ concerns about wage and benefit increases and job security and postal management’s concerns about cost cutting and flexibility in hiring practices. According to a postal official, negotiations about old issues that keep resurfacing have at times been bitter and damaging to the relationship between the Service and the unions at the national level. Union officials also cited the Service’s contracting out of various postal functions—also known as outsourcing—as a topic that has caused them a great deal of concern. high volume. These officials told us that their views had not changed significantly since we issued our 1994 report. Generally, the officials tended to blame each other for the high volume of grievances being filed and the large number of backlogged grievances. Finally, at the time our 1997 report was issued, the Postal Service and the other seven organizations had been unable to convene a labor-management relations summit. The Postmaster General (PMG) proposed the summit over 2 years ago to, among other things, address our recommendation to establish a framework agreement of common goals and approaches that could help postal, union, and management association officials improve labor-management relations and employee working conditions. Initially, the responses from the other seven organizations to the PMG’s invitation were mixed. For instance, around January 1995, the leaders of the three management associations and the Rural Carriers union accepted the invitation to participate in the summit. However, at that time, the contracts for three unions—APWU, NALC, and Mail Handlers—had expired and negotiations had begun. The union leaders said they were waiting until contract negotiations were completed before making a decision on the summit. In April 1996, when negotiations had been completed, the three unions agreed to participate. Because of these initial difficulties in convening the summit, in February 1996, the Service asked the Director of FMCS to provide mediation services to help convene the summit. Also, in March 1996, Mr. Chairman, you encouraged the FMCS Director to assist the Service by providing such services. As discussed in our 1997 report, although various preliminary meetings had taken place to determine an agenda, the efforts to convene a summit were not successful. Recently, according to an FMCS official, a summit occurred on October 29, 1997, that was attended by various officials from the eight organizations, including the Postal Service, the four major unions, and the three management associations. We are encouraged by the fact that this meeting occurred. Such meetings can provide the participants a means of working toward reaching agreement on common approaches for addressing labor-management relations problems. We believe that such agreement is a key factor in helping these organizations sustain improvements in their relations and in the postal work environment. September 1996) on Delivery Redesign, have not endorsed the testing of the revised processes. At the national level, NALC officials told us that they believed that revisions to the processes by which city carriers sort and deliver mail should be established through the collective bargaining process. The Employee Opinion Survey (EOS) is an example of an initiative that was discontinued. The nationwide annual EOS, begun in 1992 and continued through 1995, was a voluntary survey designed to gather the opinions of all postal employees about the Service’s strengths and shortcomings as an employer. Postal officials told us that such opinions have been useful in helping the Service determine the extent of labor-management problems throughout the organization and make efforts to address those problems. Efforts to continue implementing this initiative were hampered primarily by disagreements among the Service and the other involved participants over how best to use the initiative to help improve the postal work environment. Also, according to postal officials, a lack of union participation in this initiative generally caused the Service to discontinue its use. According to some postal and union officials, the 1995 EOS was boycotted primarily because some unions believed that the Service inappropriately used the results of past surveys during the 1994 contract negotiations. As discussed in our report, we continue to believe that to sustain and achieve maximum benefits from any improvement efforts, it is important for the Service, the four major unions, and the three management associations to agree on common approaches for addressing labor-management relations problems. Our work has shown that there are no clear or easy solutions to these problems. But continued adversarial relations could lead to escalating workplace difficulties and hamper efforts to achieve desired improvements. In our report, we identified some approaches that might help the Service, the unions, and the management associations reach consensus on strategies for dealing with persistent labor-management relations problems. Such approaches included the use of a third-party facilitator, the requirements of the Government Performance and Results Act, and the proposed Postal Employee-Management Commission. As I mentioned previously, with the assistance of FMCS, the Postal Service, the four major unions, and the three management associations recently convened a postal summit meeting. As discussed in our 1994 report, we believe that the use of FMCS as a third-party facilitator indicated that outside advice and assistance can be useful in helping the eight organizations move forward in their attempts to reach agreement on common approaches for addressing labor-management relations problems. In addition, the Government Performance and Results Act provides an opportunity for joint discussions. Under the Results Act, Congress, the Postal Service, its unions, and its management associations as well as other stakeholders with an interest in postal activities can discuss not only the mission and proposed goals for the Postal Service but also the strategies to be used to achieve desired results. These discussions can provide Congress and the other stakeholders a chance to better understand the Service’s mission and goals. Such discussions can also provide opportunities for the parties to work together to reach consensus on strategies for attaining such goals, especially those that relate to the long-standing labor-management relations problems that continue to challenge the Service. Another approach aimed at improving labor-management relations is the proposed establishment of an employee-management commission that was included in the postal reform legislation you introduced in June 1996 and reintroduced in January 1997. Under this proposed legislation, a temporary, presidentially appointed seven-member Postal Employee-Management Commission would be established. This Commission would be responsible for evaluating and recommending solutions to the workplace difficulties confronting the Service. The proposed Commission would prepare its first set of reports within 18 months and terminate after preparing its second and third sets of reports. We received comments on a draft of our report from nine organizations—the Service, the four major unions, the three management associations, and FMCS. The nine organizations generally agreed with the report’s basic message that little progress had been made in improving persistent labor-management relations problems, although they expressed different opinions as to why. Also, the nine organizations often had different views on such matters as the implementation of and results associated with the 10 initiatives; the likelihood of the organizations to reach consensus on the resolution of persistent labor-management relations problems; the desirability of having external parties, such as Congress, become involved in addressing such problems; and the comprehensiveness of our methodology, which we believed was reasonable and appropriate given the time and resources available. We believe that the diversity of opinions on these matters reinforces the overall message of our most recent report and provides additional insight on the challenges that lie ahead with efforts to try to improve labor-management relations problems in the Postal Service. In summary, the continued inability to reach agreement has prevented the Service, the four major unions, and the three management associations from implementing our recommendation to develop a framework agreement. We continue to believe that such an agreement is needed to help the Service, the unions, and the management associations reach consensus on the appropriate goals and approaches for dealing with persistent labor-management relations problems and improving the postal work environment. Although we recognize that achieving consensus may not be easy, we believe that without it, workplace difficulties could escalate and hamper efforts to bring about desired improvements. Mr. Chairman, this concludes my prepared statement. My colleague and I would be pleased to respond to any questions you may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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GAO discussed its report on the efforts of the Postal Service, the four major labor unions, and the three management associations to improve employee working conditions and overall labor-management relations, focusing on: (1) the extent to which the Postal Service, the four unions, and the three management associations have progressed in addressing persistent labor-management relations problems since GAO's 1994 report was issued; (2) the implementation of various improvement efforts, or initiatives, some of which were intended to help these eight organizations deal with problems identified in the 1994 report; and (3) approaches that might help the eight organizations improve labor-management relations. GAO noted that: (1) little progress has been made in improving persistent labor-management relations problems at the Postal Service since 1994; (2) although the Postal Service, the four major unions, and the three management associations generally agreed that improvements were needed, they have been unable to agree on common approaches to solving such problems; (3) these parties have not been able to implement GAO's recommendation to establish a framework agreement that would outline common goals and strategies to set the stage for improving the postal work environment; (4) in a recent report, GAO described some improvement initiatives that many postal, union, and management association officials believed held promise for making a difference in the labor-management relations climate; (5) despite actions taken to implement such initiatives, little information was available to measure results, as some initiatives: (a) had only recently been piloted or implemented; or (b) were not fully implemented or had been discontinued because postal, union, and management association officials disagreed on the approaches used to implement the initiatives or on their usefulness in making improvements; (6) efforts to resolve persistent labor-management relations problems pose an enormous challenge for the Postal Service and its unions and management associations; (7) with assistance from a third-party facilitator, the Postal Service and leaders from the four unions and the three management associations convened a summit, aimed at providing an opportunity for all the parties to work toward reaching agreement on how best to address persistent labor-management relations problems; (8) another such opportunity involves the strategic plan required by the Government Performance and Results Act, which can provide a foundation for all major postal stakeholders to participate in defining common goals and identifying strategies to be used to achieve these goals; (9) a proposal was included in pending postal reform legislation to establish a presidentially appointed commission that could recommend improvements; (10) GAO continues to believe that it is important for the eight organizations to agree on appropriate strategies for addressing labor-management relations problems; (11) various approaches exist that can be used to help the organizations attain consensus; and (12) without such consensus, the ability to sustain lasting improvements in the postal work environment may be difficult to achieve.

FEMA has developed a policy and procedures regarding misconduct investigations that apply to all FEMA personnel and has also documented policies and procedures regarding options to address misconduct and appeal rights for Title 5 and CORE employees. However, FEMA has not documented complete misconduct policies and procedures for Surge Capacity Force members or Reservists. DHS issued the Surge Capacity Force Concept of Operations in 2010, which outlines FEMA’s base implementation plan for the Surge Capacity Force. However, the document does not address any elements pertaining to Surge Capacity Force human capital management, specifically misconduct and disciplinary policies and procedures. According to the FEMA Surge Capacity Force Coordinator, despite the lack of documentation, any incidents of misconduct would likely be investigated by FEMA’s OCSO, which would then refer the completed report of investigation to the employee’s home component for adjudication and potential disciplinary action. However, although no allegations of misconduct were made at the time, the Federal Coordinating Officer in charge of one of the Hurricane Sandy Joint Field Offices said he had not seen anything in writing or any formal guidance that documents or explains how the process would work and stated that he would have had to contact FEMA headquarters for assistance in determining how to address any misconduct. Without documented guidance, FEMA cannot ensure that Surge Capacity Force misconduct is addressed adequately in a timely and comprehensive manner. Therefore, in our July 2017 report we recommended that the FEMA Administrator document policies and procedures to address potential Surge Capacity Force misconduct. DHS concurred and stated that FEMA is developing a Human Capital plan for the Surge Capacity Force and will include policies and procedures relating to potential misconduct. DHS estimated that this effort would be completed by June 30, 2018. This action, if fully implemented, should address the intent of the recommendation. Additionally, we found that FEMA’s Reservist Program Manual lacks documented policies and procedures on disciplinary options to address misconduct and appeal rights for Reservists. Both LER and PLB officials told us that, in practice, disciplinary actions for Reservists are limited to reprimands and termination. According to these officials, FEMA does not suspend Reservists because they are an intermittent, at-will workforce deployed as needed to respond to disasters. Federal Coordinating Officers and cadre managers have the authority to demobilize Reservists and remove them from a Joint Field Office if misconduct occurs, which may be done in lieu of suspension. Furthermore, LER and PLB officials also told us that, in practice, FEMA grants Reservists the right to appeal a reprimand or termination to their second-level supervisor. However, these actions are not documented in the Reservist Program Manual. Without documented Reservist disciplinary options and appeals policies, supervisors and Reservist employees may not be aware of all aspects of the disciplinary and appeals process. Thus, in our July 2017 report, we recommended that FEMA document Reservist disciplinary options and appeals that are currently in practice at the agency. DHS concurred and stated that FEMA will update its Reservist program directive to include procedures for disciplinary actions and appeals currently in practice at the agency. DHS estimated that this effort would be completed by December 31, 2017. This action, if fully implemented, should address the intent of the recommendation. We also reported in our July 2017 report that FEMA does not communicate the range of offenses and penalties to its entire workforce. Namely, FEMA revised its employee disciplinary manual for Title 5 employees in 2015, and in doing so, eliminated the agency’s table of offenses and penalties. Tables of offenses and penalties are used by agencies to provide guidance on the range of penalties available when formal discipline is taken. They also provide awareness and inform employees of the penalties which may be imposed for misconduct. Since revising the manual and removing the table, FEMA no longer communicates possible punishable offenses to its entire workforce. Instead, information is now communicated to supervisors and employees on an individual basis. Specifically, LER specialists currently use a “comparators” spreadsheet with historical data on previous misconduct cases to determine a range of disciplinary or adverse actions for each specific misconduct case. The information used to determine the range of penalties is shared with the supervisor on a case-by-case basis; however, LER specialists noted that due to privacy protections they are the only FEMA officials who have access to the comparators spreadsheet. Because information about offenses and penalties is not universally shared with supervisors and employees, FEMA management is limited in its ability to set expectations about appropriate conduct in the workplace and to communicate consequences of inappropriate conduct. We recommended that FEMA communicate the range of penalties for specific misconduct offenses to all employees and supervisors. DHS concurred and stated that FEMA is currently drafting a table of offenses and penalties and will take steps to communicate those penalties to employees throughout the agency once the table is finalized. DHS estimated that this effort would be completed by December 31, 2017. This action, if fully implemented, should address the intent of the recommendation. The three offices on the AID Committee involved in investigating and adjudicating employee misconduct complaints each maintain separate case tracking spreadsheets with data on employee misconduct to facilitate their respective roles in the misconduct review process. We analyzed data provided by OCSO in its case tracking spreadsheet and found that there were 595 complaints from January 2014 through September 30, 2016. The complaints involved alleged offenses of employee misconduct which may or may not have been substantiated over the course of an investigation. Based on our analysis, the 595 complaints contained approximately 799 alleged offenses from January 2014 through September 30, 2016. As shown in figure 1 below, the most common type of alleged offenses were integrity and ethics violations (278), inappropriate comments and conduct (140), and misuse of government property or funds (119). For example, one complaint categorized as integrity and ethics involved allegations that a FEMA employee at a Joint Field Office was accepting illegal gifts from a FEMA contractor and a state contractor. Another complaint categorized as inappropriate comments and conduct involved allegations that a FEMA employee’s supervisor and other employees had bullied and cursed at them, creating an unhealthy work environment. Finally, a complaint categorized as misuse of government property or funds involved allegations that a former FEMA employee was terminated but did not return a FEMA-owned laptop. OCSO, LER, and PLB collect data on employee misconduct and outcomes, but limited standardization of fields and entries within fields, limited use of unique case identifiers, and a lack of documented guidance on data entry restricts their usefulness for identifying and addressing trends in employee misconduct. FEMA employee misconduct data are not readily accessible and cannot be verified as accurate and complete on a timely basis. These limitations restrict management’s ability to process the data into quality information that can be used to identify and address trends in employee misconduct. For example, an OCSO official stated that senior OCSO officials recently requested employee misconduct information based on employee type, such as the number of Reservists. However, the data are largely captured in narrative fields, making it difficult to extract without manual review. In our July 2017 report we recommended that FEMA improve the quality and usefulness of the misconduct data it collects by implementing quality control measures, such as adding additional drop-down fields with standardized entries, adding unique case identifier fields, developing documented guidance for data entry, or considering the adoption of database software. In addition, we recommended that FEMA conduct routine reporting on employee misconduct trends once the quality of the data is improved. DHS concurred and stated that FEMA is working with the DHS OIG to develop a new case management system. The system will use drop-down fields with standardized entries and provide tools for trend analysis. Once the new system is implemented, DHS stated that FEMA will be able to routinely identify and address emerging trends of misconduct. DHS estimated that these efforts would be completed by March 31, 2018. These actions, if fully implemented, should address the intent of the recommendations. Officials from OCSO, LER, and PLB conduct weekly AID Committee meetings to coordinate information on misconduct allegations and investigations. The committee reviews allegations, refers cases for investigation or inquiry, and discusses the status of investigations. In addition to the weekly AID Committee meetings, LER and PLB officials stated that they meet on a regular basis to discuss disciplinary and adverse actions and ensure that any penalties are consistent and defensible in court. Employee misconduct information is also shared directly with FEMA’s Chief Security Officer and Chief Counsel. Within FEMA, these regular meetings and status reports provide officials from key personnel management offices opportunities to communicate and share information about employee misconduct. FEMA also provides DHS OIG with information on employee misconduct cases on a regular basis through monthly reports on open investigations. We found that OCSO has not established effective procedures to ensure that all cases referred to FEMA by DHS OIG are accounted for and subsequently reviewed and addressed. As discussed earlier, OCSO sends a monthly report of open investigations to DHS OIG. However, while these reports provide awareness of specific investigations, according to OCSO officials, neither office reconciles the reports to a list of referred cases to ensure that all cases are addressed. We reviewed a non-generalizable random sample of 20 fiscal year 2016 employee misconduct complaints DHS OIG referred to FEMA for review and found that FEMA missed 6 of the 20 complaints during the referral process and had not reviewed them at the time of our inquiry. As a result of our review, FEMA subsequently took action to review the complaints. The AID Committee recommended that OCSO open inquiries in 3 of the 6 cases to determine whether the allegations were against FEMA employees, assigned 2 cases to LER for further review, and closed 1 case for lack of information. According to an OCSO official, OCSO subsequently determined that none of the allegations in the 3 cases they opened involved FEMA employees and the cases were closed. The remaining 2 cases were open as of April 2017. The results from our sample cannot be generalized to the entire population of referrals from DHS OIG to FEMA; however, they raise questions as to whether there could be additional instances of misconduct complaints that FEMA has not reviewed or addressed. Therefore, in our July 2017 report we recommended that FEMA develop reconciliation procedures to consistently track referred cases. DHS concurred and stated that once the new case management system described above is established and fully operational, FEMA will be able to upload all DHS OIG referrals into a single, agency-wide database. Additionally, FEMA will work with DHS OIG to establish processes and procedures that will improve reconciliation of case data. DHS estimated that these efforts would be completed by March 31, 2018. These actions, if fully implemented, should address the intent of the recommendation. Chairman Perry, Ranking Member Correa, Members of the Subcommittee, this concludes my prepared testimony. I would be pleased to answer any questions that you may have at this time. If you or your staff members have any questions concerning this testimony, please contact me at 404-679-1875 or CurrieC@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Sarah Turpin, Kristiana Moore, Steven Komadina, and Ben Atwater. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony summarizes the information contained in GAO's July 2017 report, entitled Federal Emergency Management Agency: Additional Actions Needed to Improve Handling of Employee Misconduct Allegations ( GAO-17-613 ). The Federal Emergency Management Agency (FEMA) has developed and documented misconduct policies and procedures for most employees, but not its entire workforce. Specifically, FEMA has developed policies and procedures regarding misconduct investigations that apply to all FEMA personnel and has also documented options to address misconduct and appeal rights for Title 5 (generally permanent employees) and Cadre of On-Call Response/Recovery Employees (temporary employees who support disaster related activities). However, FEMA has not documented misconduct policies and procedures for Surge Capacity Force members, who may augment FEMA's workforce in the event of a catastrophic disaster. Additionally, FEMA's Reservist (intermittent disaster employees) policies and procedures do not outline disciplinary actions or the appeals process currently in practice at the agency. As a result, supervisors and Reservist employees may not be aware of all aspects of the process. Clearly documented policies and procedures for all workforce categories could help to better prepare management to address misconduct and mitigate perceptions that misconduct is handled inconsistently. FEMA records data on misconduct cases and their outcomes; however, aspects of this data limit their usefulness for identifying and addressing trends. GAO reviewed misconduct complaints recorded by FEMA's Office of the Chief Security Officer (OCSO) from January 2014 through September 30, 2016, and identified 595 complaints involving 799 alleged offenses, the most common of which were integrity and ethics violations. FEMA reported 546 disciplinary actions related to misconduct from calendar year 2014 through 2016. In addition to OCSO, two other FEMA offices involved in investigating and adjudicating misconduct also record data. However, limited standardization of data fields and entries within fields, limited use of unique case identifiers, and a lack of documented guidance on data entry across all three offices restricts the data's usefulness for identifying and addressing trends in employee misconduct. Improved quality control measures could help the agency use the data to better identify potential problem areas and opportunities for training. FEMA shares misconduct case information internally and with the Department of Homeland Security Office of Inspector General (DHS OIG) on a regular basis; however, FEMA does not have reconciliation procedures in place to track DHS OIG referred cases to ensure that they are reviewed and addressed. GAO reviewed a random sample of 20 cases DHS OIG referred to FEMA in fiscal year 2016 and found that FEMA missed 6 of the 20 complaints during the referral process and had not reviewed them at the time of GAO's inquiry. As a result of GAO's review, FEMA took action to review the complaints and opened inquiries in 5 of the 6 cases (1 case was closed for lack of information). In 3 of these cases, officials determined that the complaints did not involve FEMA employees. The 2 remaining cases were open as of April 2017. While the results from this review are not generalizable to the entire population of referrals from DHS OIG to FEMA, they raise questions as to whether there could be additional instances of misconduct complaints that FEMA has not reviewed or addressed. Procedures to ensure reconciliation of referred cases across FEMA and DHS OIG records could help ensure that FEMA accounts for all complaints.

Through the impartial and independent investigation of citizens’ complaints, federal ombudsmen help agencies be more responsive to the public, including people who believe that their concerns have not been dealt with fully or fairly through normal channels. Ombudsmen may recommend ways to resolve individual complaints or more systemic problems, and may help to informally resolve disagreements between the agency and the public. While there are no federal requirements or standards specific to the operation of federal ombudsman offices, the Administrative Conference of the United States recommended in 1990 that the President and the Congress support federal agency initiatives to create and fund an external ombudsman in agencies with significant interaction with the public. In addition, several professional organizations have published relevant standards of practice for ombudsmen. Both the recommendations of the Administrative Conference of the United States and the standards of practice adopted by various ombudsman associations incorporate the core principles of independence, impartiality (neutrality), and confidentiality. For example, the ABA’s standards define these characteristics as follows: Independence—An ombudsman must be and appear to be free from interference in the legitimate performance of duties and independent from control, limitation, or penalty by an officer of the appointing entity or a person who may be the subject of a complaint or inquiry. Impartiality—An ombudsman must conduct inquiries and investigations in an impartial manner, free from initial bias and conflicts of interest. Confidentiality—An ombudsman must not disclose and must not be required to disclose any information provided in confidence, except to address an imminent risk of serious harm. Records pertaining to a complaint, inquiry, or investigation must be confidential and not subject to disclosure outside the ombudsman’s office. Relevant professional standards contain a variety of criteria for assessing an ombudsman’s independence, but in most instances, the underlying theme is that an ombudsman should have both actual and apparent independence from persons who may be the subject of a complaint or inquiry. According to ABA guidelines, for example, a key indicator of independence is whether anyone subject to the ombudsman’s jurisdiction can (1) control or limit the ombudsman’s performance of assigned duties, (2) eliminate the office, (3) remove the ombudsman for other than cause, or (4) reduce the office’s budget or resources for retaliatory purposes. Other factors identified in the ABA guidelines on independence include a budget funded at a level sufficient to carry out the ombudsman’s responsibilities; the ability to spend funds independent of any approving authority; and the power to appoint, supervise, and remove staff. The Ombudsman Association’s standards of practice define independence as functioning independent of line management; they advocate that the ombudsman report to the highest authority in the organization. According to the ABA’s recommended standards, “the ombudsman’s structural independence is the foundation upon which the ombudsman’s impartiality is built.” One aspect of the core principle of impartiality is fairness. According to an article published by the U.S. Ombudsman Association on the essential characteristics of an ombudsman, an ombudsman should provide any agency or person being criticized an opportunity to (1) know the nature of the criticism before it is made public and (2) provide a written response that will be published in whole or in summary in the ombudsman’s final report. In addition to the core principles, some associations also stress the need for accountability and a credible review process. Accountability is generally defined in terms of the publication of periodic reports that summarize the ombudsman’s findings and activities. Having a credible review process generally entails having the authority and the means, such as access to agency officials and records, to conduct an effective investigation. The ABA recommends that an ombudsman issue and publish periodic reports summarizing the findings and activities of the office to ensure its accountability to the public. Similarly, recommendations by the Administrative Conference of the United States regarding federal ombudsmen state that they should be required to submit periodic reports summarizing their activities, recommendations, and the relevant agency’s responses. Federal agencies face legal and practical constraints in implementing some aspects of these standards because the standards were not designed primarily with federal agency ombudsmen in mind. However, ombudsmen at the federal agencies we reviewed for our 2001 report reflected aspects of the standards. We examined the ombudsman function at four federal agencies in addition to EPA and found that three of them—the Federal Deposit Insurance Corporation, the Food and Drug Administration, and the Internal Revenue Service—had an independent office of the ombudsman that reported to the highest level in the agency, thus giving the ombudsmen structural independence. In addition, the ombudsmen at these three agencies had functional independence, including the authority to hire, supervise, discipline, and terminate their staff, consistent with the authority granted to other offices within their agencies. They also had control over their budget resources. The exception was the ombudsman at the Agency for Toxic Substances and Disease Registry, who did not have a separate office with staff or a separate budget. This ombudsman reported to the Assistant Administrator of the agency instead of the agency head. In our July 2001 report, we recommended, among other things, that EPA modify its organizational structure so that the function would be located outside of the Office of Solid Waste and Emergency Response, whose activities the national ombudsman was charged with reviewing. EPA addresses this recommendation through its placement of the national ombudsman within the OIG, where the national ombudsman will report to a newly-created position of Assistant Inspector General for Congressional and Public Liaison. OIG officials also told us that locating the national ombudsman function within the OIG offers the prospect of additional resources and enhanced investigative capability. According to the officials, the national ombudsman will likely have a small permanent staff but will also be able to access OIG staff members with expertise in specific subject matters, such as hazardous waste or water pollution, on an as-needed basis. Further, OIG officials anticipate that the ombudsman will adopt many of the office’s existing recordkeeping and reporting practices, which could help address the concerns we noted in our report about accountability and fairness to the parties subject to an ombudsman investigation. Despite these aspects of EPA’s reorganization, several issues merit further consideration. First and foremost is the question of intent in establishing an ombudsman function. The term “ombudsman,” as defined within the ombudsman community, carries with it certain expectations. The role of an ombudsman typically includes program operating responsibilities, such as helping to informally resolve program-related issues and mediating disagreements between the agency and the public. Assigning these responsibilities to an office within the OIG would conflict with statutory restrictions on the Inspector General’s activities. Specifically, the Inspector General Act, as amended, prohibits an agency from transferring any function, power, or duty involving program responsibilities to its OIG. However, if EPA omits these responsibilities from the position within the OIG, then it will not have established an “ombudsman” as the function is defined within the ombudsman community. In our April 2001 report, we noted that some federal experts in dispute resolution were concerned that among the growing number of federal ombudsman offices there are some individuals or activities described as “ombuds” or “ombuds offices” that do not generally conform to the standards of practice for ombudsmen. A related issue is that ombudsmen generally serve as a key focal point for interaction between the government, or a particular government agency, and the general public. By placing the national ombudsman function within its OIG, EPA appears to be altering the relationship between the function and the individuals that make inquiries or complaints. Ombudsmen typically see their role as being responsive to the public, without being an advocate. However, EPA’s reorganization signals a subtle change in emphasis: OIG officials see the ombudsman function as a source of information regarding the types of issues that the OIG should be investigating. Similarly, rather than issue reports to complainants, OIG officials expect that the national ombudsman’s reports will be addressed to the EPA Administrator, consistent with the reporting procedures for other OIG offices. The officials told us that their procedures for the national ombudsman function, which are still being developed, could provide for sending a copy of the final report or a summary of the investigation to the original complainant along with a separate cover letter when the report is issued to the Administrator. Based on the preliminary information available from EPA, the reorganization raises other issues regarding the consistency of the agency’s ombudsman function with relevant professional standards. For example, under EPA’s reorganization, the national ombudsman will not be able to exercise independent control over budget and staff resources, even within the general constraints that are faced by federal agencies. According to OIG officials, the national ombudsman will have input into the hiring, assignment, and supervision of staff, but overall authority for staff resources and the budget allocation rests with the Assistant Inspector General for Congressional and Public Liaison. OIG officials pointed out that the issue our July 2001 report raised about control over budget and staff resources was closely linked to the ombudsman’s placement within the Office of Solid Waste and Emergency Response. The officials believe that once the national ombudsman function was relocated to the OIG, the inability to control resources became much less significant as an obstacle to operational independence. They maintain that although the ombudsman is not an independent entity within the OIG, the position is independent by virtue of the OIG’s independence. Despite the OIG’s argument, we note that the national ombudsman will also lack authority to independently select and prioritize cases that warrant investigation. According to EPA, the Inspector General has the overall responsibility for the work performed by the OIG, and no single staff member—including the ombudsman—has the authority to select and prioritize his or her own caseload independent of all other needs. Decisions on whether complaints warrant a more detailed review will be made by the Assistant Inspector General for Congressional and Public Liaison in consultation with the national ombudsman and staff. EPA officials are currently reviewing the case files obtained from the former ombudsman, in part to determine the anticipated workload and an appropriate allocation of resources. According to OIG officials, the national ombudsman will have access to other OIG resources as needed, but EPA has not yet defined how decisions will be made regarding the assignment of these resources. Under the ABA guidelines, one measure of independence is a budget funded at a level sufficient to carry out the ombudsman’s responsibilities. However, if both the ombudsman’s budget and workload are outside his or her control, then the ombudsman would be unable to assure that the resources for implementing the function are adequate. Ombudsmen at other federal agencies must live within a budget and are subject to the same spending constraints as other offices within their agencies, but they can set their own priorities and decide how their funds will be spent. EPA has also not yet fully defined the role of its regional ombudsmen or the nature of their relationship with the national ombudsman in the OIG. EPA officials told us that the relationship between the national and regional ombudsmen is a “work in progress” and that the OIG will be developing procedures for when and how interactions will occur. Depending on how EPA ultimately defines the role of its regional ombudsmen, their continued lack of independence could remain an issue. In our July 2001 report, we concluded that the other duties assigned to the regional ombudsmen—primarily line management positions within the Superfund program—hamper their independence. Among other things, we cited guidance from The Ombudsman Association, which states that an ombudsman should serve “no additional role within an organization” because holding another position would compromise the ombudsman’s neutrality. According to our discussions with officials from the Office of Solid Waste and Emergency Response and the OIG, the investigative aspects of the ombudsman function will be assigned to the OIG, but it appears that the regional ombudsmen will respond to inquiries and have a role in informally resolving issues between the agency and the public before they escalate into complaints about how EPA operates. For the time being, EPA officials expect the regional ombudsmen to retain their line management positions. Finally, including the national ombudsman function within the Office of the Inspector General raises concerns about the effect on the OIG, even if EPA defines the ombudsman’s role in a way that avoids conflict with the Inspector General Act. By having the ombudsman function as a part of the OIG, the Inspector General could no longer independently audit and investigate that function, as is the case at other federal agencies where the ombudsman function and the OIG are separate entities. As we noted in a June 2001 report on certain activities of the OIG at the Department of Housing and Urban Development, under applicable government auditing standards the OIG cannot independently and impartially audit and investigate activities it is directly involved in. A related issue concerns situations in which the national ombudsman receives an inquiry or complaint about a matter that has already been investigated by the OIG. For example, OIG reports are typically transmitted to the Administrator after a review by the Inspector General. A process that requires the Inspector General to review an ombudsman- prepared report that is critical of, or could be construed as reflecting negatively on, previous OIG work could pose a conflict for the Inspector General. OIG officials are currently working on detailed procedures for the national ombudsman function, including criteria for opening, prioritizing, and closing cases, and will have to address this issue as part of their effort. In conclusion, Mr. Chairman, we believe that several issues need to be considered in EPA’s reorganization of its ombudsman function. The first is perhaps the most fundamental—that is, the need to clarify the intent. We look forward to working with members of the Committee as you consider the best way of resolving these issues.

The Environmental Protection Agency's (EPA) hazardous waste ombudsman was established as a result of the 1984 amendments to the Resource Conservation and Recovery Act. Recognizing that the ombudsman provides a valuable service to the public, EPA retained the ombudsman function as a matter of policy after its legislative authorization expired in 1988. Over time, EPA expanded the national ombudsman's jurisdiction to include Superfund and other hazardous waste programs, and, by March 1996, EPA had designated ombudsmen in each of its ten regional offices. In November 2001, the agency announced that the national ombudsman would be relocated from the Office of Solid Waste and Emergency Response to the Office of the Inspector General (OIG) and would address concerns across the spectrum of EPA programs, not just hazardous waste programs. Although there are no federal requirements or standards specific to the operation of ombudsman offices, several professional organizations have published standards of practice relevant to ombudsmen who deal with public inquiries. If EPA intends to have an ombudsman function consistent with the way the position is typically defined in the ombudsman community, placing the national ombudsman within the OIG does not achieve that objective. The role of the ombudsman typically includes program operating responsibilities, such as helping to informally resolve program-related issues and mediating disagreements between the agency and the public. Including these responsibilities within the OIG would likely conflict with the Inspector General Act, which prohibits the transfer of program operating responsibilities to the Inspector General; yet, omitting these responsibilities would result in establishing an ombudsman that is not fully consistent with the function as defined within the ombudsman community.

Since the early 1990s, the explosion in computer interconnectivity, most notably growth in the use of the Internet, has revolutionized the way organizations conduct business, making communications faster and access to data easier. However, this widespread interconnectivity has increased the risks to computer systems and, more importantly, to the critical operations and infrastructures that these systems support, such as telecommunications, power distribution, national defense, and essential government services. Malicious attacks, in particular, are a growing concern. The National Security Agency has determined that foreign governments already have or are developing computer attack capabilities, and that potential adversaries are developing a body of knowledge about U.S. systems and methods to attack them. In addition, reported incidents have increased dramatically in recent years. Accordingly, there is a growing risk that terrorists or hostile foreign states could severely damage or disrupt national defense or vital public operations through computer-based attacks on the nation’s critical infrastructures. Since 1997, in reports to the Congress, we have designated information security as a governmentwide high-risk area. Our most recent report in this regard, issued in January, noted that, while efforts to address the problem have gained momentum, federal assets and operations continued to be highly vulnerable to computer-based attacks. To develop a strategy to reduce such risks, in 1996, the President established a Commission on Critical Infrastructure Protection. In October 1997, the commission issued its report, stating that a comprehensive effort was needed, including “a system of surveillance, assessment, early warning, and response mechanisms to mitigate the potential for cyber threats.” The report said that the Federal Bureau of Investigation (FBI) had already begun to develop warning and threat analysis capabilities and urged it to continue in these efforts. In addition, the report noted that the FBI could serve as the preliminary national warning center for infrastructure attacks and provide law enforcement, intelligence, and other information needed to ensure the highest quality analysis possible. In May 1998, PDD 63 was issued in response to the commission’s report. The directive called for a range of actions intended to improve federal agency security programs, establish a partnership between the government and the private sector, and improve the nation’s ability to detect and respond to serious computer-based attacks. The directive established a National Coordinator for Security, Infrastructure Protection, and Counter-Terrorism under the Assistant to the President for National Security Affairs. Further, the directive designated lead agencies to work with private-sector entities in each of eight industry sectors and five special functions. For example, the Department of the Treasury is responsible for working with the banking and finance sector, and the Department of Energy is responsible for working with the electric power industry. PDD 63 also authorized the FBI to expand its NIPC, which had been originally established in February 1998. The directive specifically assigned the NIPC, within the FBI, responsibility for providing comprehensive analyses on threats, vulnerabilities, and attacks; issuing timely warnings on threats and attacks; facilitating and coordinating the government’s response to cyber incidents; providing law enforcement investigation and response; monitoring reconstitution of minimum required capabilities after an infrastructure attack; and promoting outreach and information sharing. PDD 63 assigns the NIPC responsibility for developing analytical capabilities to provide comprehensive information on changes in threat conditions and newly identified system vulnerabilities as well as timely warnings of potential and actual attacks. This responsibility requires obtaining and analyzing intelligence, law enforcement, and other information to identify patterns that may signal that an attack is underway or imminent. Since its establishment in 1998, the NIPC has issued a variety of analytical products, most of which have been tactical analyses pertaining to individual incidents. These analyses have included (1) situation reports related to law enforcement investigations, including denial-of-service attacks that affected numerous Internet-based entities, such as eBay and Yahoo and (2) analytical support of a counterintelligence investigation. In addition, the NIPC has issued a variety of publications, most of which were compilations of information previously reported by others with some NIPC analysis. Strategic analysis to determine the potential broader implications of individual incidents has been limited. Such analysis looks beyond one specific incident to consider a broader set of incidents or implications that may indicate a potential threat of national importance. Identifying such threats assists in proactively managing risk, including evaluating the risks associated with possible future incidents and effectively mitigating the impact of such incidents. Three factors have hindered the NIPC’s ability to develop strategic analytical capabilities. First, there is no generally accepted methodology for analyzing strategic cyber-based threats. For example, there is no standard terminology, no standard set of factors to consider, and no established thresholds for determining the sophistication of attack techniques. According to officials in the intelligence and national security community, developing such a methodology would require an intense interagency effort and dedication of resources. Second, the NIPC has sustained prolonged leadership vacancies and does not have adequate staff expertise, in part because other federal agencies had not provided the originally anticipated number of detailees. For example, as of the close of our review in February, the position of Chief of the Analysis and Warning Section, which was to be filled by the Central Intelligence Agency, had been vacant for about half of the NIPC’s 3-year existence. In addition, the NIPC had been operating with only 13 of the 24 analysts that NIPC officials estimate are needed to develop analytical capabilities. Third, the NIPC did not have industry-specific data on factors such as critical system components, known vulnerabilities, and interdependencies. Under PDD 63, such information is to be developed for each of eight industry segments by industry representatives and the designated federal lead agencies. However, at the close of our work in February, only three industry assessments had been partially completed, and none had been provided to the NIPC. To provide a warning capability, the NIPC established a Watch and Warning Unit that monitors the Internet and other media 24 hours a day to identify reports of computer-based attacks. As of February, the unit had issued 81 warnings and related products since 1998, many of which were posted on the NIPC’s Internet web site. While some warnings were issued in time to avert damage, most of the warnings, especially those related to viruses, pertained to attacks underway. The NIPC’s ability to issue warnings promptly is impeded because of (1) a lack of a comprehensive governmentwide or nationwide framework for promptly obtaining and analyzing information on imminent attacks, (2) a shortage of skilled staff, (3) the need to ensure that the NIPC does not raise undue alarm for insignificant incidents, and (4) the need to ensure that sensitive information is protected, especially when such information pertains to law enforcement investigations underway. However, I want to emphasize a more fundamental impediment. Specifically, evaluating the NIPC’s progress in developing analysis and warning capabilities is difficult because the federal government’s strategy and related plans for protecting the nation’s critical infrastructures from computer-based attacks, including the NIPC’s role, are still evolving. The entities involved in the government’s critical infrastructure protection efforts do not share a common interpretation of the NIPC’s roles and responsibilities. Further, the relationships between the NIPC, the FBI, and the National Coordinator for Security, Infrastructure Protection, and Counter-Terrorism at the National Security Council are unclear regarding who has direct authority for setting NIPC priorities and procedures and providing NIPC oversight. In addition, the NIPC’s own plans for further developing its analytical and warning capabilities are fragmented and incomplete. As a result, there are no specific priorities, milestones, or program performance measures to guide NIPC actions or provide a basis for evaluating its progress. The administration is currently reviewing the federal strategy for critical infrastructure protection that was originally outlined in PDD 63, including provisions related to developing analytical and warning capabilities that are currently assigned to the NIPC. Most recently, on May 9, the White House issued a statement saying that it was working with federal agencies and private industry to prepare a new version of a “national plan for cyberspace security and critical infrastructure protection” and reviewing how the government is organized to deal with information security issues. Our report recommends that, as the administration proceeds, the Assistant to the President for National Security Affairs, in coordination with pertinent executive agencies, establish a capability for strategic analysis of computer-based threats, including developing related methodology, acquiring staff expertise, and obtaining infrastructure data; require development of a comprehensive data collection and analysis framework and ensure that national watch and warning operations for computer-based attacks are supported by sufficient staff and resources; and clearly define the role of the NIPC in relation to other government and private-sector entities. PDD 63 directed the NIPC to provide the principal means of facilitating and coordinating the federal government’s response to computer-based incidents. In response, the NIPC has undertaken efforts in two major areas: providing coordination and technical support to FBI investigations and establishing crisis management capabilities. First, the NIPC has provided valuable coordination and technical support to FBI field offices, which have established special squads and teams and one regional task force in its field offices to address the growing number of computer crime cases. The NIPC has supported these investigative efforts by (1) coordinating investigations among FBI field offices, thereby bringing a national perspective to individual cases, (2) providing technical support in the form of analyses, expert assistance for interviews, and tools for analyzing and mitigating computer-based attacks, and (3) providing administrative support to NIPC field agents. For example, the NIPC produced over 250 written technical reports during 1999 and 2000, developed analytical tools to assist in investigating and mitigating computer-based attacks, and managed the procurement and installation of hardware and software tools for the NIPC field squads and teams. While these efforts have benefited investigative efforts, FBI and NIPC officials told us that increased computer capacity and data transmission capabilities would improve their ability to promptly analyze the extremely large amounts of data that are associated with some cases. In addition, FBI field offices are not yet providing the NIPC with the comprehensive information that NIPC officials say is needed to facilitate prompt identification and response to cyber incidents. According to field office officials, some information on unusual or suspicious computer-based activity has not been reported because it did not merit opening a case and was deemed to be insignificant. The NIPC has established new performance measures related to reporting to address this problem. Second, the NIPC has developed crisis management capabilities to support a multiagency response to the most serious incidents from the FBI’s Washington, D.C., Strategic Information Operations Center. Since 1998, seven crisis action teams have been activated to address potentially serious incidents and events, such as the Melissa virus in 1999 and the days surrounding the transition to the year 2000, and related procedures have been formalized. In addition, the NIPC has coordinated development of an emergency law enforcement plan to guide the response of federal, state, and local entities. To help ensure an adequate response to the growing number of computer crimes, we are recommending that the Attorney General, the FBI Director, and the NIPC Director take steps to (1) ensure that the NIPC has access to needed computer and communications resources and (2) monitor implementation of new performance measures to ensure that field offices fully report information on potential computer crimes to the NIPC. Information sharing and coordination among private-sector and government organizations are essential to thoroughly understanding cyber threats and quickly identifying and mitigating attacks. However, as we testified in July 2000,establishing the trusted relationships and information-sharing protocols necessary to support such coordination can be difficult. NIPC efforts in this area have met with mixed success. For example, the InfraGard Program, which provides the FBI and the NIPC with a means of securely sharing information with individual companies, has gained participants. In January 2001, NIPC officials announced that 518 organizations had enrolled in the program, which NIPC officials view as an important element in building trust relationships with the private sector. However, of the four information sharing and analysis centers that had been established as focal points for infrastructure sectors, a two-way, information-sharing partnership with the NIPC had developed with only one—the electric power industry. The NIPC’s dealings with two of the other three centers primarily consisted of providing information to the centers without receiving any in return, and no procedures had been developed for more interactive information sharing. The NIPC’s information-sharing relationship with the fourth center was not covered by our review because the center was not established until mid-January 2001, shortly before the close of our work. Similarly, the NIPC and the FBI had made only limited progress in developing a database of the most important components of the nation’s critical infrastructures—an effort referred to as the Key Asset Initiative. While FBI field offices had identified over 5,000 key assets, the entities that own or control the assets generally had not been involved in identifying them. As a result, the key assets recorded may not be the ones that infrastructure owners consider to be the most important. Further, the Key Asset Initiative was not being coordinated with other similar federal efforts at the Departments of Defense and Commerce. In addition, the NIPC and other government entities had not developed fully productive information-sharing and cooperative relationships. For example, federal agencies have not routinely reported incident information to the NIPC, at least in part because guidance provided by the federal Chief Information Officers Council, which is chaired by the Office of Management and Budget, directs agencies to report such information to the General Services Administration’s Federal Computer Incident Response Capability. Further, NIPC and Defense officials agreed that their information-sharing procedures need improvement, noting that protocols for reciprocal exchanges of information had not been established. In addition, the expertise of the U.S. Secret Service regarding computer crime had not been integrated into NIPC efforts. The NIPC has been more successful in providing training on investigating computer crime to government entities, which is an effort that it considers an important component of its outreach efforts. From 1998 through 2000, the NIPC trained about 300 individuals from federal, state, local, and international entities other than the FBI. In addition, the NIPC has advised five foreign governments that are establishing centers similar to the NIPC.

To better protect the nation's critical computer-dependent infrastructures from computer-based attacks and disruption, the President issued a directive in 1998 that established the National Infrastructure Protection Center as a national focal point for gathering information on threats and facilitating the federal government's response to computer-based incidents. This testimony discusses the center's progress in (1) developing national capabilities for analyzing cyber threat and vulnerability data and issuing warnings, (2) enhancing its capabilities for responding to cyber attacks, and (3) developing outreach and information-sharing initiatives with government and private-sector entities. GAO found that although the center has taken some steps to develop analysis and warning capabilities, the strategic capabilities described in the presidential directive have not been achieved. By coordinating investigations and providing technical assistance the center has provided important support that has improved the Federal Bureau of Investigations' ability to investigate computer crimes. The center has also developed crisis management procedures and drafted an emergency law enforcement sector plan, which is now being reviewed by sector members. The center's information-sharing relationships are still evolving and will probably have limited effectiveness until reporting procedures and thresholds are defined and trust relationships are established. This testimony summarized an April 2001 report (GAO-01-323).

Medicare and Medicaid have consistently been targets for fraudulent conduct because of their size and complexity. Private health care insurance carriers are also vulnerable to fraud due to the immense volume of claims they receive and process. Those who commit fraud against public health insurers are also likely to engage in similar conduct against private insurers. The Coalition Against Insurance Fraud estimates that in 1997 fraud in the health care industry totaled about $54 billion nationwide, with $20 billion attributable to private insurers and $34 billion to Medicare and Medicaid. In addition to losses due to fraud, the Department of Health and Human Services’ OIG has reported that billing errors, or mistakes, made by health care providers were significant contributors to improperly paid health care insurance claims. The OIG defined billing errors as (1) providing insufficient or no documentation, (2) reporting incorrect codes for medical services and procedures performed, and (3) billing for services that are not medically necessary or that are not covered. For fiscal year 2000, the OIG reported that an estimated $11.9 billion in improper payments were made for Medicare claims. In a March 1997 letter to health care providers, the Department of Health and Human Services’ IG suggested that providers work cooperatively with the OIG to show that compliance can become a part of the provider culture. The letter emphasized that such cooperation would ensure the success of initiatives to identify and penalize dishonest providers. One cooperative effort between the IG and health care groups resulted in the publication of model compliance programs for health care providers. The OIG encourages providers to adopt compliance principles in their practice and has published specific guidance for individual and small group physician practices as well as other types of providers to help them design voluntary compliance programs. A voluntary compliance program can help providers recognize when their practice has submitted erroneous claims and ensure that the claims they submit are true and accurate. In addition, the OIG has incorporated its voluntary self-disclosure protocolinto the compliance program, under which sanctions may be mitigated if provider-detected violations are reported voluntarily. Evaluation and management services refer to work that does not involve a medical procedure—the thinking part of medicine. The key elements involved in evaluation and management services are (1) obtaining the patient’s medical history, (2) performing a physical examination, and (3) making medical decisions. Medical decisions include determining which diagnostic tests are needed, interpreting the results of the diagnostic tests, making the diagnosis, and choosing a course of treatment after discussing the risks and benefits of various treatment options with the patient. These decisions might involve work of low, medium, or high complexity. Each of the key elements of evaluation and management services contains components that indicate the amount of work done. For example, a comprehensive medical history would involve (1) determining a patient’s chief complaint, (2) tracing the complete history of the patient’s present illness, (3) questioning other observable characteristics of the patient’s present condition and overall state of health (review of systems), (4) obtaining a complete medical history for the patient, (5) developing complete information on the patient’s social history, and (6) recording a complete family history. A more focused medical history would involve obtaining only specific information relating directly to the patient’s symptoms at the time of the visit. Providers and their staffs use identifying codes defined in an American Medical Association publication, titled Current Procedural Terminology (CPT), to bill for outpatient evaluation and management services performed during office visits. The CPT is a list of descriptive terms and identifying codes for reporting all standard medical services and procedures performed by physicians. Updated annually, it is the most widely accepted nomenclature for reporting physician procedures and services under both government and private health insurance programs. The CPT codes reported to insurers are used in claims processing, and they form the basis for compensating providers commensurate with the level of work involved in treating a patient. Accordingly, the higher codes, which correspond to higher payments, are used when a patient’s problems are numerous or complex or pose greater risk to the patient, or when there are more diagnostic decisions to be made or more treatment options to be evaluated. The CPT has two series of evaluation and management codes for outpatient office visits, one series for new patient visits and another for established patient visits. Each series of CPT codes has five levels that correspond to the difficulty and complexity of the work required to address a patient’s needs. The code selected by the provider to describe the services performed in turn determines the amount the provider will be paid for the visit. For example, under the current Medicare fee schedule for the District of Columbia and surrounding suburbs, a provider would be paid $39.30 for a new patient who is determined to have received services commensurate with a level 1 visit and $182.52 for a level 5 visit. Similarly, payments for level 1 and level 5 visits by an established patient are $22.34 and $128.03, respectively. The two workshops we attended provided certain advice that is inconsistent with the OIG guidance and that, if followed, could result in violations of criminal and civil statutes. Specifically, at one workshop the consultant suggested that when providers identify an overpayment from an insurance carrier, they should not report or refund the overpayment. Furthermore, consultants at both workshops suggested that providers attempt to receive a higher-than-earned level of compensation by making it appear, through documentation, that a patient presented more complex problems than he or she actually did. Additionally, one consultant suggested that providers limit the services offered to patients with low- paying insurance plans, such as Medicaid, and that they discourage such patients from using the provider’s services by offering appointments to them only in time slots that are inconvenient to other patients. One workshop focused on the merits of implementing voluntary compliance programs. The consultant who presented this particular discussion explained that a baseline self-audit to determine the level of compliance with applicable laws, rules, and regulations is a required step in creating a voluntary compliance program. Focusing on “how to audit- proof your practice” and avoid sending out “red flags,” the consultant advised providers not to report or refund overpayments they identify as a result of the self-audit. The consultant claimed that reporting or refunding the overpayment would raise a red flag that could result in an audit or investigation. When asked the proper course of action to take when an overpayment is identified, the consultant responded that providers are required to report and refund overpayments. He said, however, that instead of refunding overpayments, physician practices generally fix problems in their billing systems that cause overpayments while “keeping their mouths shut” and “getting on with life.” Such conduct, however, could result in violations of criminal statutes. According to the most recent OIG Medicare audit report, the practice of billing for services that are not medically necessary or that lack sufficient diagnostic justification is a serious problem in the health insurance system. The OIG estimated that during fiscal year 2000, $5.1 billion was billed to insurance plans for unnecessary services. Intentionally billing for services that are not medically necessary may result in violations of law. Moreover, based on advice given at workshops that we attended during this investigation, we are concerned that insurers may be paying for tests and procedures that are not medically necessary because physicians may be intentionally using such services to justify billing for evaluation and management services at higher code levels than actual circumstances warrant. Specifically, two consultants advised that documentation of evaluation and management services performed can be used to create, for purposes of an audit, the appearance that medical issues confronted at the time of a patient’s office visit were of a higher level of difficulty than they actually were. For example, a consultant at one workshop urged practitioners to enhance revenues by finding creative ways to justify bills for patient evaluation and management services at high code levels. He advised that one means of justifying bills at high code levels is to have nonphysician health professionals perform numerous procedures and tests. To illustrate his point, the consultant discussed the hypothetical case of a cardiologist who examines a patient in an emergency room where tests are performed and the patient is discharged after the cardiologist determines that the patient has a minor problem or no problem at all. To generate additional revenue, the consultant suggested that the cardiologist tell the patient to come to his office for a complete work-up, even when the cardiologist knows that the patient does not have a problem. He advised that the work-up be performed during two separate office visits and that the cardiologist not be involved in the first visit. Instead, a nurse is to perform tests, draw blood, and take a medical history. During the second visit, the cardiologist is to consult with the patient to discuss the results of the tests and issues such as life style. The consultant indicated that the cardiologist could bill for a level 4 visit, indicating that a relatively complex medical problem was encountered at the time of the visit. The consultant made clear that the cardiologist did not actually confront a complex problem during the visit because the cardiologist already knew, based on the emergency room tests and examination, that the patient did not have such a problem. Another consultant focused on how to develop the highest code level for health care services and create documentation to avoid having an insurer change the code to a lower one. The consultant engaged in “exercises” with participants designed to suggest that coding results are “arbitrary” determinations. His emphasis was not that the code selection be correct or even that the services be performed, but rather that it is important to create a documentary basis for the codes billed in the event of an audit. He explained that in the event of an audit, the documentation created is the support for billing for services at higher code levels than warranted. During the exercises, program participants—all were physicians except for our criminal investigator—were provided a case study of an encounter with a generally healthy 14-year-old patient with a sore throat. Participants were asked to develop the evaluation and management service code for the visit that diagnosed and treated the patient’s laryngitis. The consultant suggested billing the visit as a level 4 encounter, supporting the code selection by documenting every aspect of the medical history and physical examination, and mechanically counting up the work documented to make the services performed appear more complicated than they actually were. All of the participants indicated that they would have coded the visit at a lower level than that suggested by the consultant, who stated that “documentation has its rewards.” The consultant explained that in the event of an audit, the documentation created would be the basis for making it appear that a bill at a high code level was appropriate. One workshop consultant encouraged practices to differentiate between patients based on the level of benefits paid by their insurance plans. He identified the Medicaid program in particular as being the lowest and slowest payer, and urged the audience to stop accepting new Medicaid patients altogether. The consultant also suggested that the audience members limit the services they provide to established Medicaid patients and offer appointments to them only in hard-to-fill time slots. Workshop participants were advised to offer better-insured patients follow-up services that are intended to affiliate a patient permanently with the practice. However, the consultant suggested that physicians may decide not to offer such services to Medicaid patients. He sent a clear message to his audience that a patient’s level of care should be commensurate with the level of insurance benefits available to the patient. This advice raises two questions: First, are medically necessary services not being made available to Medicaid patients? Second, are better-paying insurance plans being billed for services that are not medically necessary but performed for the purpose of affiliating patients from such plans to a medical practice? Program participants were further urged to see at least one new patient with a better-paying insurance plan each day. The consultant pointed out that, by seeing one new patient per day, a provider can increase revenue by $6,000 per year because the fee for a new patient visit is about $30 more than the fee for an established patient visit. He said that over time such measures would result in reducing the percentage of Medicaid patients seen regularly in the practice and increase the number of established patients with better-paying insurance. The consultant also recommended that providers limit the number of scheduled appointment slots available to Medicaid patients on any given day and that Medicaid patients be offered appointments only in hard-to-fill time slots rather than in the “best,” or convenient, time slots. He suggested that insurance information and new patient status be used to allocate the best time slots to the best payers. He identified this approach as “rationing,” which he described as “not real discrimination,” but “somewhat discrimination.” While neither the Social Security Act nor Medicaid regulations require physicians to accept Medicaid patients, title VI of the Civil Rights Act of 1964 prohibits discrimination based upon race, color, or national origin in programs that receive federal financial assistance. The Department of Health and Human Services, which administers the Medicare and Medicaid programs, takes the position that the nondiscrimination requirement of title VI applies to doctors in private offices who treat and bill for Medicaid patients. While the conduct promoted by the consultant is not overt discrimination on the basis of race, color, or national origin, under certain circumstances, such conduct might disproportionately harm members of protected groups and raise questions about title VI compliance. Moreover, even if the conduct promoted is not unlawful, it raises serious concerns about whether it would result in depriving Medicaid patients of medically necessary services, and whether better-paying insurance plans are billed for services that are not medically necessary but performed for the purpose of affiliating patients to a particular medical practice. Advice offered to providers at workshops and seminars has the potential for easing program integrity problems in the Medicare and Medicaid programs by providing guidance on billing codes for evaluation and management services. However, if followed, the advice provided at two workshops we attended would exacerbate integrity problems and result in unlawful conduct. Moreover, the advice raises concerns that some payments classified by the OIG as improperly paid health care insurance claims may stem from conscious decisions to submit inflated claims in an attempt to increase revenue. We have discussed with the Department of Health and Human Services’ OIG the need to monitor workshops and seminars similar to the ones we attended. As arranged with your office, unless you announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will make copies of the report available to interested congressional committees and the Secretary of the Department of Health and Human Services. This report will also be available at www.gao.gov. If you have any questions about this investigation, please call me at (202) 512-7455 or Assistant Director William Hamel at (202) 512-6722. Senior Analyst Shelia James, Assistant General Counsel Robert Cramer, and Senior Attorney Margaret Armen made key contributions to this report.

This report investigates health care consultants who conduct seminars or workshops that offer advice to health care providers on ways to enhance revenue and avoid audits or investigations. GAO attended several seminars and workshops offered by these consultants. GAO sought to determine whether the consultants were providing advice that could result in improper or excessive claims to Medicare, Medicaid, other federally funded health plans, and private health insurance carriers. GAO found that some advice was inconsistent with guidance provided by the Department of Health and Human Services' Office of Inspector General (OIG). Such advice could result in violations of both civil and criminal statutes.

NRC’s implementation of a risk-informed, performance-based regulatory approach for commercial nuclear power plants is complex and will require many years to fully implement. It requires basic changes to the regulations and NRC’s processes to ensure the safe operation of these plants. NRC faces a number of challenges to develop and to implement this process. For example, because of the complexity of this change, the agency needs a strategy to guide its development and implementation. We recommended such a strategy in March 1999. We suggested that a clearly defined strategy would help guide the regulatory transformation if it described the regulatory activities NRC planned to change to a risk-informed approach, the actions needed to accomplish this transformation, and the schedule and resources needed to make these changes. NRC initially agreed that it needed a comprehensive strategy, but it has not developed one. As one NRC Commissioner said in March 2000, “we really are . . . inventing this as we go along given how much things are changing, it’s very hard to plan even 4 months from now, let alone years from now.” NRC did develop the Risk-Informed Regulation Implementation Plan, which includes guidelines to identify, set priorities for, and implement risk-informed changes to regulatory processes. The plan also identifies specific tasks and projected milestones. The Risk-Informed Regulation Implementation Plan is not as comprehensive as it needs to be, because it does not identify performance measures, the items that are critical to achieving its objectives, activities that cut across its major offices, resources, or the relationships among the more than 40 separate activities (25 of which pertain to nuclear plants). For example, risk-informing NRC’s regulations will be a formidable task because they are interrelated. Amending one regulation can potentially affect other regulations governing other aspects of nuclear plant operations. NRC found this to be the case when it identified over 20 regulations that would need to be made consistent as it developed a risk- informed approach for one regulation. NRC expects that its efforts to change its regulations applicable to nuclear power plants to focus more on relative risk will take 5 to 8 years. NRC has compounded the complexity of moving to a new regulatory approach by deciding that compliance with such an approach will be voluntary. As a result, NRC will be regulating with two different systems— one for those utilities that choose to comply with a risk-informed approach and another for those that choose to stay with the existing regulatory approach. It is not clear how this dual system will be implemented. One part of the new risk-informed approach that has been implemented is a new safety oversight process for nuclear power plants. It was implemented in April 2000; and since then, NRC’s challenge has been to demonstrate that the new approach meets its goal of maintaining the same level of safety as the old approach, while being more predictable and consistent. The nuclear industry, states, public interest groups, and NRC staff have raised questions about various aspects of the process. For example, the industry has expressed concern about some of the performance indicators selected. Some NRC staff are concerned that that the process does not track all inspections issues and NRC will not have the information available, should the public later demand accountability from the agency. Furthermore, it is very difficult under the new process to assess those activities that cut across all aspects of plant operations— problem identification and resolution, human performance, and safety conscious work environment. In June 2001, NRC staff expect to report to the Commission on the first year of implementation of the new process and recommend changes, where warranted. NRC is facing a number of difficulties inherent in applying a risk-informed regulatory approach for nuclear material licensees. The sheer number of licensees—almost 21,000—and the diversity of the activities they conduct—converting uranium, decommissioning nuclear plants, transporting radioactive materials, and using radioactive material for industrial, medical, or academic purposes—increase the complexity of developing a risk-informed approach that would adequately cover all types of licensees. For example, the diversity of licensees results in varying levels of analytical sophistication; different experience in using risk- informed methods, such as risk assessments and other methods; and uneven knowledge about the analytical methods that would be useful to them. Because material licensees will be using different risk-informed methods, NRC has grouped them by the type of material used and the regulatory requirements for that material. For example, licensees that manufacture casks to store spent reactor fuel could be required to use formal analytical methods, such as a risk assessment. Other licensees, such as those that use nuclear material in industrial and medical applications, would not be expected to conduct risk assessments. In these cases, NRC staff said that they would use other methods to determine those aspects of the licensees’ operations that have significant risk, using an approach that considers the hazards (type, form, and quantity of material) and the barriers or physical and administrative controls that prevent or reduce exposure to these hazards. Another challenge associated with applying a risk-informed approach to material licensees is how NRC will implement a new risk-informed safety and safeguards oversight process for fuel cycle facilities. Unlike commercial nuclear power plants, which have a number of design similarities, most of the 10 facilities that prepare fuel for nuclear reactors perform separate and unique functions. For example, one facility converts uranium to a gas for use in the enrichment process, two facilities enrich or increase the amount of uranium-235 in the gas, and five facilities fabricate the uranium into fuel for commercial nuclear power plants. These facilities possess large quantities of materials that are potentially hazardous (i.e., explosive, radioactive, toxic, and/or combustible) to workers. The facilities’ diverse activities makes it particularly challenging for NRC to design a “one size fits all” safety oversight process and to develop indicators and thresholds of performance. In its recently proposed new risk-informed safety oversight process for material licensees, NRC has yet to resolve such issues as the structure of the problem identification, resolution, and corrective action program; the mechanics of the risk- significance determination process; and the regulatory responses that NRC would take when changes in performance occur. NRC had planned to pilot test the new fuel cycle facility safety oversight process in fiscal year 2001, but staff told us that this schedule could slip. NRC also faces challenges in redefining its role in a changing regulatory environment. As the number of agreement states increases beyond the existing 32, NRC must continue to ensure the adequacy and consistency of the states’ programs as well as its own effectiveness and efficiency in overseeing licensees that are not regulated by the agreement states. NRC has been working with the Conference of Radiation Control Program Directors (primarily state officials) and the Organization of Agreement States to address these challenges. However, NRC has yet to address the following questions: (1) Would NRC continue to need staff in all four of its regional offices as the number of agreement states increases? (2) What are the appropriate number, type, and skills for headquarters staff? and (3) What should NRC’s role be in the future? Later this month, a NRC/state working group expects to provide the Commission with its recommended options for the materials program of the future. NRC wants to be in a position to plan for needed changes because in 2003, it anticipates that 35 states will have agreements with NRC and that the states will oversee more than 85 percent of all material licensees. Another challenge NRC faces is to demonstrate that it is meeting one of its performance goals under the Government Performance and Results Act— increasing public confidence in NRC as an effective regulator. There are three reasons why this will be difficult. First, to ensure its independence, NRC cannot promote nuclear power, and it must walk a fine line when communicating with the public. Second, NRC has not defined the “public” that it wants to target in achieving this goal. Third, NRC has not established a baseline to measure the “increase” in its performance goal. In March 2000, the Commission rejected a staff proposal to conduct a survey to establish a baseline. Instead, in October 2000, NRC began an 18-month pilot effort to use feedback forms at the conclusion of public meetings. Twice a year, NRC expects to evaluate the information received on the forms to enhance its public outreach efforts. The feedback forms that NRC currently plans to use will provide information on the extent to which the public was aware of the meeting and the clarity, completeness, and thoroughness of the information provided by NRC at the meetings. Over time, the information from the forms may show that the public better understands the issues of concern or interest for a particular plant. It is not clear, however, how this information will show that public confidence in NRC as a regulator has increased. This performance measure is particularly important to bolster public confidence as the industry decides whether to submit a license application for one or more new nuclear power plants. The public has a long history with the traditional regulatory approach and may not fully understand the reasons for implementing a risk-informed approach and the relationship of that approach to maintaining plant safety. In a highly technical and complex industry, NRC is facing the loss of a significant percentage of its senior managers and technical staff. For example, in fiscal year 2001, about 16 percent of NRC staff are eligible to retire, and by the end of fiscal year 2005, about 33 percent will be eligible. The problem is more acute at the individual office level. For example, within the Office of Nuclear Reactor Regulation, about 42 percent of the technical staff and 77 percent of senior executive service staff are eligible for retirement. During this period of potentially very high attrition, NRC will need to rely on that staff to address the nuclear industry’s increasing demands to extend the operating licenses of existing plants and transfer the ownership of others. Likewise, in the Office of Nuclear Regulatory Research, 49 percent of the staff are eligible to retire at the same time that the nuclear industry is considering building new plants. Since that Office plays a key role in reviewing any new plants, if that Office looses some of its highly-skilled, well-recognized research specialists to retirement, NRC will be challenged to make decisions about new plants in a timely way, particularly if the plant is an untested design. In its fiscal year 2000 performance plan, NRC identified the need to maintain core competencies and staff as an issue that could affect its ability to achieve its performance goals. NRC noted that maintaining the correct balance of knowledge, skills, and abilities is critical to accomplishing its mission and is affected by various factors. These factors include the tight labor market for experienced professionals, the workload as projected by the nuclear industry to transfer and extend the licenses of existing plants, and the declining university enrollment in nuclear engineering studies and other fields related to nuclear safety. In October 2000, NRC’s Chairman requested the staff to develop a plan to assess the scientific, engineering, and technical core competencies that NRC needs and propose specific strategies to ensure that the agency maintains that competency. The Chairman noted that maintaining technical competency may be the biggest challenge confronting NRC. In January 2001, NRC staff provided a suggested action plan for maintaining core competencies to the Commission. The staff proposed to begin the 5-year effort in February 2001 at an estimated cost of $2.4 million, including the costs to purchase software that will be used to identify the knowledge and skills needed by NRC. To assess how existing human capital approaches support an agency’s mission, goals, and other organizational needs, we developed a human capital framework, which identified a number of elements and underlying values that are common to high-performing organizations. NRC’s 5-year plan appears to generally include the human capital elements that we suggested. In this regard, NRC has taken the initiative and identified options to attract new employees with critical skills, developed training programs to meets its changing needs, and identified legislative options to help resolve its aging staff issue. The options include allowing NRC to rehire retired staff without jeopardizing their pension payments and to provide salaries comparable to those paid in the private sector. In addition, for nuclear reactor and nuclear material safety, NRC expects to implement an intern program in fiscal year 2002 to attract and retain individuals with scientific, engineering, and other technical competencies. It has established a tuition assistance program, relocation bonuses, and other inducements to encourage qualified individuals not only to accept but also to continue their employment with the agency. NRC staff say that the agency is doing the best that it can with the tools available to hire and retain staff. Continued oversight of NRC’s multiyear effort is needed to ensure that it is being properly implemented and is effective in achieving its goals. Mr. Chairman and Members of the Subcommittee, this concludes our statement. We would be pleased to respond to any questions you may have.

This testimony discusses the challenges facing the Nuclear Regulatory Commission (NRC) as it moves from its traditional regulatory approach to a risk-informed, performance-based approach. GAO found that NRC's implementation of a risk-informed approach for commercial nuclear power plants is a complex, multiyear undertaking that requires basic changes to the regulations and processes NRC uses to ensure the safe operation of these plants. NRC needs to overcome several inherent difficulties as it seeks to apply a risk-informed regulatory approach to the nuclear material licensees, particularly in light of the large number of licensees and the diversity of activities they conduct. NRC will have to demonstrate that it is meeting its mandate (under the Government Performance and Results Act) of increasing public confidence in NRC as an effective regulator. NRC also faces challenges in human capital management, such as replacing a large percentage of its technical staff and senior managers who are eligible to retire. NRC has developed a five-year plan to identify and maintain the core competencies it needs and has identified legislative options to help resolve its aging staff problem.

The Social Security Act requires that most workers be covered by Social Security benefits. Workers contribute to the program via wage deductions. State and local government workers were originally excluded from Social Security. Starting in the 1950s, state and local governments had the option of selecting Social Security coverage for their employees or retaining their noncovered status. In 1983, state and local governments in the Social Security system were prohibited by law from opting out of it. Of the workers in the roughly 2,300 separate state and local retirement plans nationwide, about one-third are not covered by Social Security. In addition to paying retirement and disability benefits to covered workers, Social Security also generally pays benefits to spouses of retired, disabled, or deceased workers. If both spouses worked in positions covered by Social Security, each may not receive both the benefits earned as a worker and the full spousal benefit; rather the worker receives the higher amount of the two. In contrast, until 1977, workers receiving pensions from government positions not covered by Social Security could receive their full pension benefit and their full Social Security spousal benefits as if they were nonworking spouses. At that time, legislation was enacted creating the GPO, which prevented workers from receiving a full spousal benefit on top of a pension earned from noncovered government employment. 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 these cases, the GPO will not be applied to the Social Security spousal benefit. While we could not definitively confirm the extent nationwide that individuals are transferring positions to avoid the GPO, we found that 4,819 individuals in Texas and Georgia had performed work in Social Security-covered positions for short periods to qualify for the GPO last-day exemption. Use of the exemption may grow further as the practice becomes more rapidly institutionalized and the aging baby-boom generation begins to retire in larger numbers. SSA officials also acknowledged that use of the exemption might be possible in some of the approximately 2,300 state and local government retirement plans in other states where such plans contain Social Security-covered and noncovered positions. Officials in Texas reported that 4,795 individuals at 31 schools have used or plan to use last-day employment to take advantage of the GPO exemption. In 2002, one-fourth (or 3,521) of all Texas public education retirees took advantage of this exemption. In most schools, teachers typically worked a single day in a nonteaching position covered by Social Security to use the exemption. Nearly all positions were nonteaching jobs, including clerical, food service, or maintenance. Most of these employees were paid about $6 per hour. At this rate, the Social Security contributions deducted from their pay would total about $3 for the day. We estimate that the average annual spousal benefit resulting from these last-day transfers would be about $5,200. School officials also reported that individuals are willing to travel to take these jobs—noting one teacher who traveled 800 miles to use the last-day provision. Some schools reported that they charge a processing fee, ranging from $100-$500, to hire these workers. These fees are a significant source of revenue—last year one school district collected over $283,000 in fees. Our work shows that use of the exemption in Texas has increased since 1990, which was the earliest use reported to us. In one school district, for example, officials reported that use of the exemption grew from one worker in 1996 to 1,050 in 2002. Another school district that began offering last-day employment in 2002 had received over 1,400 applications by June of that year from individuals seeking to use the exemption. Use of the exemption is likely to grow further, according to trends in Texas teacher retirements and information from school officials. There were about 14,000 teacher retirements in 2002, as opposed to 10,000 in 2000. At one university we visited, officials have scheduled workdays for imminent retirees, through 2005, to work in covered employment, an indication of the rapid institutionalization of this practice. The GPO exemption is also becoming part of teachers’ regular retirement planning process as its availability and use is publicized by teaching associations and financial planners (via Web sites, newspapers, seminars, etc.) and by word-of-mouth. One association’s Web site we identified lists the names and telephone numbers of school officials in counties covered by Social Security and how to contact those officials for such work. A financial planner’s Web site we identified indicated that individuals who worked as little as 1 day under a Social Security-covered position to quality for the GPO exemption could earn $150,000 or more in benefits over their lifetime. In Georgia, officials in one district reported that 24 individuals have used or plan to use covered employment to take advantage of the GPO exemption. Officials told us that teachers generally agreed to work for approximately 1 year in another teaching position in a school district covered by Social Security to use the GPO exemption. These officials told us that they expect use of the exemption to increase as awareness of it grows. According to Georgia officials, their need to address a teacher shortage outweighs the risk to individual schools of teachers leaving after 1 year. Officials in fast-growing school systems reported they needed to hire teachers even if they only intended to teach for 1 year. However, some schools reported that they have had teachers leave shortly after being hired. For example, in one district, a teacher signed a 1-year contract to teach but left after 61 days, a time sufficient to avoid the spousal benefit reduction. In some of the applications for school employment we reviewed, individuals explicitly indicated their desire to work in a county covered by Social Security in order to obtain full Social Security spousal benefits. Use of the GPO exemption might be possible in other plans nationwide. SSA officials told us that some of the approximately 2,300 state and local government retirement plans—where such plans contain Social Security- covered and noncovered positions—may offer individuals the opportunity to use the GPO exemption. Officials representing state and local government retirement plans in other states across the country also told us that their plans allow covered and noncovered Social Security positions, making it possible for workers to avoid the GPO by transferring from one type of position to the other. For example: An official in a midwestern state whose plan covers all state government employees, told us that it is possible for law enforcement personnel (noncovered) to take a covered job in the state insurance bureau (covered) just before retiring. In a southern state with a statewide retirement plan for school employees, teachers and other school professionals (noncovered) can potentially transfer to a job in the school cafeteria (covered) to avoid the GPO. A retirement system official from a north central state reported hearing of a few cases where teachers had taken advantage of the exemption by transferring to jobs in other school districts covered by Social Security. Finally, in a western state with a statewide retirement plan, workers could move from one government agency (noncovered) to a position in another agency (covered). The transfers to avoid the GPO we identified in Texas and Georgia could increase long-term benefit payments from the Social Security Trust Fund by about $450 million. We 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). We believe that these estimated payments would likely increase as use of the exemption grows. Our prior report identified two options for addressing potential abuses of the GPO exemption. The first option, as proposed in H.R. 743, is to change the last-day provision to a longer minimum time period. This option would require only small changes to administer and would be less burdensome than other methods for SSA to administer. Also, this option has precedent. Legislation in 1987 required federal employees transferring between two federal retirement systems, the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS), to remain in FERS for 5 years before they were exempt from the GPO. We found that most of the jobs in Texas last for about 1 day, so extending the time period might eliminate many of the exemption users in Texas. The second option our report identified is to use a proportional approach to determine the extent to which the GPO applies. Under this option, employees who have spent a certain proportion of their working career in a position covered by Social Security could be exempt from the GPO. This option may represent a more calibrated approach to determining benefits for individuals who have made contributions to the Social Security system for an extended period of their working years. However, SSA has noted that using a proportional approach would take time to design and would be administratively burdensome to implement, given the lack of complete and reliable data on noncovered Social Security employment. The GPO “loophole” raises fairness and equity concerns for those receiving a Social Security pension and currently subject to an offset of their spousal Social Security benefits. The exemption allows a select group of individuals with a relatively small investment of work time and only minimal Social Security contributions to gain access to potentially many years of full Social Security spousal benefits. The practice of providing full spousal benefits to individuals who receive government pensions but who made only nominal contributions to the Social Security system also runs counter to the nation’s efforts to address the solvency and sustainability of the Social Security program. Based on the number of people reported to be using the loophole in Texas and Georgia this year, the exemption could cost the Trust Fund hundreds of millions of dollars. While this currently represents a relatively small percentage of the Social Security Trust Fund, costs could increase significantly if the practice grows and begins to be adopted by other states and localities. Considering the potential for abuse of the last-day exemption and the likelihood for its increased use, we believe timely action is needed. Accordingly, our August 2002 report includes a Matter for Congressional consideration that the last-day GPO exemption be revised to provide for a longer minimum time period. This action would provide an immediate “fix” to address possible abuses of the GPO exemption identified in our review. Mr. Chairman, this concludes my prepared statement, I will be happy to respond to any questions you or other members of the Subcommittee may have. For information regarding this testimony, please contact Barbara D. Bovbjerg, Director, Education, Workforce, and Income Security Issues, on (202) 512-7215. Individuals who made key contributions to this testimony include Daniel Bertoni, Patrick DiBattista, Patricia M. Bundy, Jamila L. Jones, Daniel A. Schwimer, Anthony J. Wysocki, and Jill D. Yost.

The Government Pension Offset (GPO) exemption was enacted in 1977 to equalize the treatment of workers covered by Social Security and those with government pensions not covered by Social Security. Congress asked GAO to (1) assess the extent to which individuals retiring from jobs not covered by Social Security may be transferring briefly to covered jobs in order to avoid the GPO, and (2) estimate the impact of such transfers on the Social Security Trust Fund. Because no central data exists on use of the GPO exemption by individuals in approximately 2,300 state and local government retirement plans nationwide, GAO could not definitively confirm that this practice is occuring in states other than Texas and Georgia. In those two states, 4,819 individuals had performed work in Social Security-covered positions for short periods to qualify for the GPO last-day exemption. In Texas, teachers typically worked a single day in nontechnical positions covered by Social Security, such as clerical or janitorial positions. In Georgia, teachers generally agreed to work for approximately 1 year in another teaching position in a school district covered by Social Security. Officials in both states indicated that use of the exemption would likely continue to grow as awareness increases and it becomes part of individuals' retirement planning. For the cases GAO identified, increased long-term benefit payments from the Social Security Trust Fund could be $450 million over the long term and would likely rise further if use of the exemption grows in the states GAO visited and spreads to others. SSA officials acknowledged that use of the exemption might be possible in other state and local government retirement plans that include both those positions covered by Social Security and those not. The GPO "loophole" raises fairness and equity concerns for those receiving a Social Security pension and are currently subject to the spousal benefit offset. In the states we visited, individuals with a relatively minimal investment of work time and Social Security contributions can gain access to potentially many years of full Social Security spousal benefits. The last-day exemption could also have a more significant impact if the practice grows and begins to be adopted by other states and localities. Considering the potential for abuse, our report presented options for revising the GPO exemption, such as changing the last-day provision to a longer minimum time period or using a proportional approach based on the number of working years spent in covered and noncovered employment for determining the extent to which the GPO applies.

The Food Stamp Program helps low-income individuals and families obtain a more nutritious diet by supplementing their income with food stamp benefits. The average monthly food stamp benefit was about $70 per person during fiscal year 1997. The program is a federal-state partnership in which the federal government pays the cost of the food stamp benefits and 50 percent of the states’ administrative costs. The U.S. Department of Agriculture’s Food and Nutrition Service (FNS) administers the program at the federal level. The states’ responsibilities include certifying eligible households and calculating and issuing benefits to those who qualify. The Food Stamp Employment and Training Program, which existed prior to the Welfare Reform Act, was established to ensure that all able-bodied recipients registered for employment services as a condition of food stamp eligibility. The program’s role is to provide food stamp recipients with opportunities that will lead to paid employment and decrease dependency on assistance programs. In fiscal year 1997, the states were granted $79 million in federal employment and training funding and spent $73.9 million, or 94 percent of the grant. In the Balanced Budget Act of 1997, the Congress increased grant funding for the Food Stamp Employment and Training Program to a total of $212 million for fiscal year 1998 and specified that 80 percent of the total had to be spent to help able-bodied adults without dependents meet the work requirements. For fiscal year 1999, the Congress provided $115 million in employment and training funding. These funds remain available until expended. Employment programs that the states choose to offer may involve the public and private sectors. For example, Workfare, which qualifies as an employment program under the Welfare Reform Act, requires individuals to work in a public service capacity in exchange for public benefits such as food stamps. Some states also allow participants to meet the work requirements by volunteering at nonprofit organizations. However, under the Welfare Reform Act, job search and job readiness training are specifically excluded as qualifying activities for meeting the act’s work requirements. During April, May, and June 1998, a monthly average of about 514,200 able-bodied adults without dependents received food stamp benefits, according to information from the 42 states providing sufficient data for analysis. These adults represented about 3 percent of the monthly average of 17.5 million food stamp participants in the 42 states during that period. Of the 514,200 individuals, about 58 percent, or 296,400 of the able-bodied adults without dependents were required to meet the work requirements; 40 percent, or 208,200, were exempted from these requirements because they lived in geographic areas that had received waivers; and 2 percent, or 9,600, had been exempted by the states from the work requirements. (See app. I for state-by-state information.) The number of able-bodied adults without dependents receiving food stamp benefits has apparently declined in recent years, as has their share of participation in the program. For example, in 1995, a monthly average of 1.2 million able-bodied adults without dependents in 42 states participated in the Food Stamp Program, compared with the 514,200 individuals who participated in the period we reviewed. In addition, in 1995, 5 percent of food stamp participants were estimated to be able-bodied adults without dependents, compared with the 3 percent we identified through our survey of the states. FNS and state officials accounted for these differences by pointing out that (1) food stamp participation has decreased overall—from about 27 million per month nationwide in 1995 to about 19.5 million in April, May, and June 1998; (2) some able-bodied adults without dependents may have obtained employment and no longer needed food stamps; and (3) others who were terminated from the program may not have realized that they could regain eligibility for food stamp benefits through participation in state-sponsored employment and training programs or Workfare. Also, the states vary in the criteria they use for identifying able-bodied adults subject to the work requirements. During April, May, and June 1998, a monthly average of 23,600 able-bodied adults without dependents filled employment and training and/or Workfare positions in the 24 states that provided sufficient data for analysis. Fifteen of these states offered Workfare positions, 20 offered employment and training positions, and 11 offered both Workfare and employment and training positions. The 23,600 individuals accounted for about half of the 47,000 able-bodied adults without dependents who were offered state-sponsored employment and training assistance and/or Workfare positions. More specifically: Able-bodied adults without dependents filled about 8,000 Workfare positions per month, or 34 percent of the 23,700 Workfare positions offered by the 15 states with Workfare positions; Able-bodied adults without dependents filled about 15,600 employment and training positions per month, or 67 percent of the 23,300 employment and training positions offered by the 20 states. (See app. I for state-by-state information.) These 23,600 individuals accounted for about 17 percent of the 137,200 able-bodied adults without dependents who were subject to the work requirements in those states. Of the remaining 113,600, some may have been within the 3-month time frame for receiving food stamp benefits while not working, others may have met these requirements by finding jobs or Workfare positions on their own, and some may not have met the work requirements, thereby forfeiting their food stamp benefits. FNS and state officials said they could not yet explain the limited participation in employment and training and Workfare programs, but FNS officials and some states are trying to develop information on the reasons for low participation. In addition, some suggested that able-bodied adults without dependents participated to a limited extent in employment and training programs and Workfare because they (1) participate sporadically in the Food Stamp Program, (2) prefer not to work, or (3) believe that the relatively low value of food stamp benefits is not enough of an incentive to meet the work requirements. With only 3 months remaining in fiscal year 1998, the states were spending at a rate that would result in the use of significantly less grant funds for food stamp employment and training recipients than authorized. For the first three quarters of the fiscal year, through June 30, 1998, the states spent only 28.4 percent, or $60.2 million, of the $212 million in grants, according to FNS data. The rate of spending varied widely by state, ranging from 75 percent, or about $230,000 of the $307,000 authorized for South Dakota, to less than 1 percent, or $109,000 of the $13.4 million authorized for Michigan. Twenty-five of the states spent less than 20 percent of their grant funds, 17 spent between 20 and 49 percent, and 9 spent 50 percent or more. Also, according to preliminary fourth-quarter financial data reported to FNS, 43 states spent about $72 million, or 41 percent of the grant funds available to them for fiscal year 1998. (See app. II.) To better understand why the states were spending less of their grant funds than authorized, we interviewed food stamp directors and employment and training officials in 10 geographically dispersed states.In general, according to these officials, grant spending has been significantly less than authorized because (1) some states had a limited number of able-bodied adults without dependents who were required to work, (2) some states needed time to refocus their programs on able-bodied adults without dependents, and (3) some states reported that it was difficult to serve clients in sparsely populated areas because of transportation problems or the lack of appropriate jobs. When asked whether spending would change in fiscal year 1999, state officials had differing expectations. Officials from 4 of the 10 states—Georgia, Iowa, Ohio, and West Virginia—said that they anticipate spending about the same or less, and Pennsylvania officials were unsure whether spending would change. In contrast, officials from five states—Illinois, Michigan, Rhode Island, Texas, and Washington—anticipate increases in spending, mostly because of the improvements they have made to their employment and training programs. In discussing the rate of grant spending, officials of five states—Georgia, Pennsylvania, Washington, Texas, and West Virginia—said that the requirement to spend 80 percent of funds on able-bodied adults without dependents had caused them to decrease employment and training services to other food stamp participants. For fiscal year 1998, a maximum of 20 percent of the available grant funds—$42 million—was available for employment and training activities for other food stamp recipients, while $79 million had been provided for employment and training activities for all food stamp recipients in fiscal year 1997. State officials explained that prior to fiscal year 1998, most employment and training funds had been spent for food stamp participants who were not able-bodied adults without dependents. With the shift in funds to able-bodied adults without dependents, less has remained for the other food stamp recipients, who typically had constituted the majority of the employment and training participants in the past. Nevertheless, some of those not served by Food Stamp Employment and Training Programs may be eligible to receive employment and training through other federal and state programs. We provided USDA’s Food and Nutrition Service with a copy of a draft of this report for review and comment. We met with Food and Nutrition Service officials, who provided comments from the Food and Nutrition Service’s Office of General Counsel and the Director, Program Analysis Division, Office of Food Stamp Programs. The Food and Nutrition Service generally agreed with the contents of the report and provided technical and clarifying comments that we incorporated into the report as appropriate. To obtain information on the numbers of able-bodied adults without dependents who are receiving food stamps benefits, are required to meet work requirements, are exempted from the work requirements, and are participating in qualifying employment and training and/or Workfare programs, we surveyed the states and the District of Columbia. The survey data covered the months of April, May, and June 1998. We used the participation data for these months to estimate average monthly participation in the program. All states and the District of Columbia responded to our faxed questionnaire, and we contacted state officials as needed to verify their responses. Eighty-eight percent of the responses provided by 41 states and the District of Columbia were based on estimates and the remaining on data in state records. According to the state officials who provided estimates, their information systems were in the process of being revised and they plan to have actual data for fiscal year 1999. To obtain information on state spending of federal grants for employment and training programs, we obtained FNS’ grant funding data reported by the states and the District of Columbia for the first three quarters of fiscal 1998, the latest data that were available as of November 1998. We subsequently obtained preliminary financial data for the fourth quarter of fiscal year 1998, which are subject to change after financial reconciliation. To supplement these data, we interviewed state food stamp directors or employment and training officials in 10 geographically dispersed states, including Georgia, Illinois, Iowa, Michigan, Ohio, Pennsylvania, Rhode Island, Texas, Washington, and West Virginia. We performed our work in accordance with generally accepted government auditing standards from July through November 1998. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies of this report to the appropriate Senate and House Committees; interested Members of Congress; the Secretary of Agriculture; the Administrator of FNS; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. Please call me at (202) 512-5138 if you or your staff have any questions about this report. Major contributors to this report are listed in appendix III. (continued) Average number of food stamp participants (by individual) in April, May, and June 1998 per Food and Nutrition Service’s (FNS) data. This option in the Food Stamp Program not exercised by the state. Data insufficient for analysis. Percent of fiscal year 1998 grant funds expended(continued) Numbers may not add due to rounding. Charles M. Adams, Assistant Director Patricia A. Yorkman, Project Leader Alice G. Feldesman Erin K. Barlow Nancy Bowser Carol Herrnstadt Shulman The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. 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Pursuant to a congressional request, GAO provided information on: (1) the number of able-bodied adults without dependents who are receiving food stamp benefits, the number who are required to meet the work requirements, and the number who are exempted from the requirements; (2) the number of able-bodied adults without dependents participating in qualifying employment and training or Workfare programs; and (3) the amounts of federal grant funds that states spent through the first three quarters of fiscal year 1998 for employment and training or workfare programs for food stamp recipients. GAO noted that: (1) in the 42 states providing sufficient data for analysis, a monthly average of about 514,200 able-bodied adults without dependents received food stamp benefits during April, May, and June 1998; (2) about 58 percent of these individuals were required to meet the work requirements, another 40 percent were not required to work because they lived in areas that were considered to have high unemployment or an insufficient number of jobs, and 2 percent had been exempted by the states from the work requirements; (3) in the 24 states providing sufficient data for analysis, a monthly average of 23,600 able-bodied adults without dependents filled state-sponsored employment and training or workfare positions; (4) these participants represented about 17 percent of the able-bodied adults without dependents who were required to work in those states to receive food stamp benefits; (5) these individuals also accounted for nearly half of the able-bodied adults without dependents who were offered employment and training assistance or workfare positions by these states; (6) as of June 30, 1998, all the states had spent only about 28 percent, or $60.2 million, of the $212 million available for state employment and training programs for food stamp recipients; (7) according to preliminary fourth-quarter financial data, 43 states had spent about $72 million, or 41 percent of the grant funds available to them for fiscal year 1998; and (8) according to federal and state officials, the low percentage of spending for food stamp employment and training programs occurred primarily because: (a) fewer able-bodied adults without dependents were required to work than anticipated and fewer than anticipated accepted this assistance; and (b) some states needed more time to refocus their food stamp employment and training programs to target these individuals.

As we reported in our February 2014 report, since CSA was implemented nationwide in 2010, it has been successful in raising the profile of safety in the motor carrier industry and providing FMCSA with more tools to increase interventions with carriers. We found that following the implementation of CSA, FMCSA was potentially able to reach a larger number of carriers, primarily by sending them warning letters. Law enforcement officials and industry stakeholders we interviewed generally supported the structure of the CSA program, in part because CSA provides data about the safety record of individual carriers, such as data on inspections, violations, crashes, and investigations, that help guide the work of state inspectors during inspections. However, despite these advantages, our report also uncovered major challenges in reliably assessing safety risk and targeting the riskiest carriers. First, according to FMCSA, SMS was designed to use all safety-related violations of FMCSA regulations recorded during roadside inspections. For SMS to be effective in identifying carriers at risk of crashing, the violation information that is used to calculate SMS scores should have a relationship with crash risk. However, we found that the relationship between the violation of most of these regulations and crash risk is unclear, potentially limiting the effectiveness of SMS in identifying carriers that are likely to crash. Our analysis found that most of the safety regulations used in SMS were violated too infrequently over a 2-year period to reliably assess whether they were accurate predictors of an individual carrier’s likelihood to crash. Specifically, we found that 593 of the 754 regulations we examined were violated by less than one percent of carriers. Of the remaining regulations with sufficient violation data, we found 13 regulations for which violations consistently had some association with crash risk in at least half the tests we performed, and only two regulations had sufficient data to consistently establish a substantial and statistically reliable relationship with crash risk across all of our tests. Second, most carriers lack sufficient safety performance data, such as information from inspections, to ensure that FMCSA can reliably compare them with other carriers. SMS scores are based on violation rates that are calculated by dividing a carrier’s violations by either the number of inspections or vehicles associated with a carrier. The precision and reliability of these rates varies greatly depending on the number of inspections or vehicles a carrier has. Violation rates calculated for carriers with more inspections or vehicles will have more precision and confidence than those with only a few inspections or vehicles. This statistical reality is critical to SMS, because for the majority of the industry, the number of inspections or vehicles for an individual carrier is very low. About two- thirds of carriers we evaluated operated fewer than four vehicles and more than 93 percent operated fewer than 20 vehicles. Moreover, many of these carriers’ vehicles were inspected infrequently. Carriers with few inspections or vehicles will potentially have estimated violation rates that are artificially high or low and thus not sufficiently precise for comparison across carriers. This creates the likelihood that many SMS scores do not accurately or precisely assess safety for a specific carrier. FMCSA acknowledged that violation rates for carriers with few inspections or vehicles can be less precise, but the methods FMCSA uses to address this limitation are not effective. For example, FMCSA requires a minimum level of data (i.e., inspections or violations) for a carrier to receive an SMS score. However, we found that level of data is not sufficient to ensure reliable results. Our analysis of the effectiveness of FMCSA’s existing CSA methodology found that the majority of the carriers that SMS identified as having the highest risk for crashing in the future did not actually crash. Moreover, smaller carriers and carriers with few inspections or vehicles tended to be disproportionately targeted for intervention. As a result, FMCSA may devote intervention resources to carriers that do not necessarily pose as great a safety risk as other carriers. In our 2014 report, we illustrated that when SMS only considered carriers with more safety information, such as inspections, it was better able to identify carriers that later crashed and allowed for better targeting of resources. An approach like this would involve trade-offs; fewer carriers would receive SMS scores, but these scores would generally be more reliable for targeting FMCSA’s intervention resources. FMCSA could still use the safety information available to oversee the remaining carriers the same way it currently oversees the approximately 72 percent of carriers that do not receive SMS scores using its existing approach. Given the limitations of safety performance information, we concluded that it is important that FMCSA consider how reliable and precise SMS scores need to be for the purposes for which they are used. FMCSA reports these scores publicly and is considering using a carrier’s performance information to determine its fitness to operate. FMCSA includes a disclaimer with the publicly released SMS scores, which states that the data are intended for agency and law enforcement purposes, and that readers should draw conclusions about a carrier’s safety condition based on the carrier’s official safety rating rather than its SMS score. At the same time, FMCSA has also stated that SMS provides stakeholders with valuable safety information, which can “empower motor carriers and other stakeholders…to make safety-based business decisions.” As a result, some stakeholders we spoke to, such as industry and law enforcement groups, have said that there is a lot of confusion in the industry about what the SMS scores mean and that the public, unlike law enforcement, may not understand the limitations of the system. Based on the concerns listed above, in our 2014 report we recommended that FMCSA revise the SMS methodology to better account for limitations in available information when drawing comparisons of safety performance across carriers. We further recommended that FMCSA’s determination of a carrier’s fitness to operate should account for limitations we identified regarding safety performance information. FMCSA did not concur with our recommendation to revise the SMS methodology because, according to FMCSA officials, SMS in its current state sufficiently prioritizes carriers for intervention purposes. However, FMCSA agreed with our recommendation on the determination of a carrier’s fitness to operate, but has not yet taken any actions. As I will discuss later in my statement, we continue to believe that FMCSA should improve its SMS methodology. As we reported in our March 2012 report, FMCSA also faces significant challenges in determining the prevalence of chameleon carriers, in part, because there are approximately 75,000 new applicants each year. As mentioned earlier, chameleon carriers are motor carriers disguising their former identity to evade enforcement actions. FMCSA has established a vetting program to review each new application for operating authority submitted by passenger carriers (intercity and charter or tour bus operators) and household goods carriers (hired by consumers to move personal property). According to FMCSA officials, FMCSA vetted all applicants in these groups for two reasons: (1) these two groups pose higher safety and consumer protection concerns than other carrier groups and (2) it does not have the resources to vet all new carriers. While FMCSA’s exclusive focus on passenger and household goods carriers limits the vetting program to a manageable number, it does not account for the risk presented by chameleon carriers in the other groups, such as for-hire freight carriers, that made up 98 percent of new applicants in 2010. We found that using data analysis to target new applicants would allow FMCSA to expand its examinations of newly registered carriers to include new applicants of all types using few or no additional staff resources. Our analysis of FMCSA data found that 1,136 new motor carrier applicants in 2010 had chameleon attributes, of which 1,082 were freight carriers.Even with the large number of new applicant carriers and constraints on its resources, we concluded in 2012 that FMCSA could target the carriers that present the highest risk of becoming chameleon carriers by using a data-driven, risk-based approach. As a result of these findings, we recommended that FMCSA use a data- driven, risk-based approach to target carriers at high risk for becoming chameleon carriers. This would allow expansion of the vetting program to all carriers with chameleon attributes, including freight carriers. FMCSA agreed with our recommendations. In June 2013, to help better identify chameleon carriers, FMCSA developed and began testing a risk-based methodology that implemented a framework that closely follows the methodology we discussed in our report. FMCSA’s preliminary analysis of this methodology indicates that it is generally successful in providing a risk-based screening of new applicants, which it plans to use as a front- end screening methodology for all carrier types seeking operating authority. By developing this risk-based methodology and analyzing the initial results, FMCSA has developed an approach that may help keep unsafe carriers off the road. To further help Congress with its oversight of FMCSA and motor carrier safety, we also have on-going work on FMCSA’s hours-of-service regulations, DOD’s Transportation Protective Services program, and commercial driver’s licenses. This work is in various stages, and we expect to issue the final reports later this year. In conclusion, the commercial motor carrier industry is large and dynamic, and FMCSA plays an important role in identifying and removing unsafe carriers from the roadways. With over 500,000 active motor carriers, it is essential to examine ways to better target FMCSA’s resources to motor carriers presenting the greatest risk. To effectively do this, FMCSA must use a number of strategies to identify and intervene with high risk carriers. We continue to believe that a data-driven, risk-based approach for identifying high risk carriers holds promise. FMCSA’s preliminary steps to implement a risk-based screening methodology have the potential to identify more high risk chameleon carriers. However, without efforts to revise its SMS methodology, FMCSA will not be able to effectively target its intervention resources toward the highest risk carriers and will be challenged to meet its mission of reducing the overall crashes, injuries, and fatalities involving large trucks and buses. Chairwoman Fischer, Ranking Member Booker, and Members of the Subcommittee, this concludes my prepared remarks. I would be pleased to answer any questions you or other Members may have at this time. For further information regarding this statement, please contact Susan Fleming at (202) 512-2834 or Flemings@gao.gov about this statement. Contact points for our Offices of Congressional Relations and Public Relations can be found on the last page of this statement. Matt Cook, Jen DuBord, Sarah Farkas, Brandon Haller, Matt LaTour, and Amy Rosewarne made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

FMCSA's primary mission of reducing crashes, injuries, and fatalities involving large trucks and buses is critical to the safety of our nation's highways. However, with more than 500,000 active motor carriers operating on U.S. roadways, FMCSA must screen, identify, and target its resources toward those carriers presenting the greatest risk for crashing in the future. FMCSA has recently taken some steps in this direction by, among other actions: Establishing its oversight program—the CSA program—based on a data-driven approach for identifying motor carriers at risk of presenting a safety hazard or causing a crash, and Establishing a vetting program designed to detect potential “chameleon” carriers—those carriers that have deliberately disguised their identity to evade enforcement actions issued against them. This testimony provides information on both of these programs, based on two recent GAO reports on the oversight challenges FMCSA faces in identifying high risk motor carriers for intervention ( GAO-14-114 ), and chameleon carriers ( GAO-12-364 ), respectively. The Federal Motor Carrier Safety Administration (FMCSA) has taken steps toward better oversight of motor carriers by establishing the Compliance, Safety, Accountability (CSA) and chameleon carrier vetting programs; however, FMCSA could improve its oversight to better target high risk carriers. The CSA program oversees carriers' safety performance through roadside inspections and crash investigations, and issues violations when instances of noncompliance with safety regulations are found. CSA provides FMCSA, state safety authorities, and the industry with valuable information regarding carriers' performance on the road. A key component of CSA—the Safety Measurement System (SMS)—uses carrier performance data collected from inspections and investigations to calculate safety scores for carriers and identify those at high risk of causing a crash. The program then uses these scores to target high risk carriers for enforcement actions, such as warning letters, additional investigations, or fines. However, GAO's 2014 report identified two major challenges that limit the precision of the SMS scores and confidence that these scores are effectively comparing safety performance across carriers. First, SMS uses violations of safety-related regulations to calculate a score, but GAO found that most of these regulations were violated too infrequently to determine whether they were accurate predictors of crash risk. Second, most carriers lacked sufficient data from inspections and violations to ensure that a carrier's SMS score could be reliably compared with scores for other carriers. GAO concluded that these challenges raise questions about whether FMCSA is able to identify and target the carriers at highest risk for crashing in the future. To address these challenges, GAO recommended, among other things, that FMCSA revise the SMS methodology to better account for limitations in available information when drawing comparisons of safety performance across carriers. FMCSA did not concur with GAO's recommendation to revise the SMS methodology because it believed that SMS sufficiently prioritized carriers for intervention. Therefore, FMCSA has not taken any actions. GAO continues to believe that a data-driven, risk-based approach holds promise, and efforts to improve FMCSA's oversight could allow it to more effectively target its resources toward the highest risk carriers, and better meet its mission of reducing the overall crashes, injuries, and fatalities involving motor carriers. GAO's 2012 report found that FMCSA examined only passenger and household goods carriers as part of its chameleon carrier vetting program for new applicants. GAO found that by modifying FMCSA's vetting program, FMCSA could expand its examinations of newly registered carriers to include all types of carriers, including freight carriers, using few additional staff resources. GAO recommended that FMCSA develop, implement, and evaluate the effectiveness of a data-driven, risk-based vetting methodology to target carriers with chameleon attributes. FMCSA concurred with GAO's recommendation and has taken actions to address these recommendations.

As we reported in October 2009, insufficient site-specific data, such as local projections of expected changes, make it hard for federal, state, and local officials to predict the impacts of climate change, and thus hard for these officials to justify the current costs of adaptation efforts for potentially less certain future benefits. Based on the responses by a diverse array of federal, state, and local officials knowledgeable about adaptation to a web-based questionnaire designed for that report, related challenges generally fit into two main categories: (1) translating climate data—such as projected temperature and precipitation changes—into information that officials need to make decisions and (2) difficulty in justifying the current costs of adaptation with limited information about future benefits. The process of providing useful information to officials making decisions about adaptation can be summarized by the following: First, data from global-scale models must be “downscaled” to provide climate information at a geographic scale relevant to decision makers. About 74 percent (133 of 179) of the officials who responded to our questionnaire rated “availability of climate information at relevant scale (i.e., downscaled regional and local information)” as very or extremely challenging. Second, the downscaled climate information must be translated into impacts at the local level, such as increased stream flow. Some respondents and officials interviewed for our October 2009 report said that it is challenging to link predicted temperature and precipitation changes to specific impacts. For example, one federal official said that “we often lack fundamental information on how ecological systems/species respond to non-climate change related anthropogenic stresses, let alone how they will respond to climate change.” Third, local impacts must be translated into costs and benefits, since this information is required for many decision making processes. Almost 70 percent (126 of 180) of the respondents to our questionnaire rated “understanding the costs and benefits of adaptation efforts” as very or extremely challenging. As noted by one local government respondent, it is important to understand the costs and benefits of adaptation efforts so they can be evaluated relative to other priorities. Fourth, decision makers need baseline monitoring data to evaluate adaptation actions over time. Nearly 62 percent (113 of 181) of the respondents to our questionnaire rated the “lack of baseline monitoring data to enable evaluation of adaptation actions (i.e., inability to detect change)” as very or extremely challenging. These challenges make it difficult for officials to justify the current costs of adaptation efforts for potentially less certain future benefits. A 2009 report by the National Research Council (NRC) discusses how officials are struggling to make decisions based on future climate scenarios instead of past climate conditions. According to the report, requested by the Environmental Protection Agency and NOAA, usual practices and decision rules (e.g. for building bridges, implementing zoning rules, using private motor vehicles) assume a stationary climate—a continuation of past climate conditions, including similar patterns of variation and the same probabilities of extreme events. According to the NRC report, that assumption, which is fundamental to the ways people and organizations make their choices, is no longer valid. Federal actions to provide and interpret site-specific information would help address challenges associated with adaptation efforts, based on our analysis of responses to the web-based questionnaire and other materials analyzed for our October 2009 report. The report discussed several potential federal actions that federal, state, and local officials identified as useful to inform adaptation decision making. These included state and local climate change impact and vulnerability assessments and the development of processes and tools to access, interpret, and apply climate information. In that report, we also obtained information regarding the creation of a climate service—a federal service to consolidate and deliver climate information to decision makers to inform adaptation efforts. About 61 percent (107 of 176) of the federal, state, and local officials who responded to the web-based questionnaire developed for our October 2009 adaptation report rated the “creation of a federal service to consolidate and deliver climate information to decision makers to inform adaptation efforts” as very or extremely useful. Respondents offered a range of potential strengths and weaknesses for such a service. Several said that a climate service would help consolidate information and provide a single-information resource for local officials, and others said that it would be an improvement over the current ad hoc system. A climate service would avoid duplication and establish an agreed set of climate information with uniform methodologies, benchmarks, and metrics for decision making, according to some officials. According to one federal official, consolidating scientific, modeling, and analytical expertise and capacity could increase efficiency. Similarly, some officials noted that with such consolidation of information, individual agencies, states, and local governments would not have to spend money obtaining climate data for their adaptation efforts. Others said that it would be advantageous to work from one source of information instead of different sources of varying quality. Some officials said that a climate service would demonstrate a federal commitment to adaptation and provide a credible voice and guidance to decision makers. In an announcement on February 8, 2010, the Department of Commerce proposed establishing a NOAA climate service. Though not yet established, information is available on the NOAA climate service website, including draft vision and strategic framework documents. According to NOAA documents, such a climate service would provide a single, reliable, and authoritative source for climate data, information, and decision support services to help individuals, businesses, communities, and governments make smart choices in anticipation of a climate changed future. A September 2010 report by the National Academy of Public Administration discusses the factors needed for a NOAA climate service to succeed—such as the designation of a lead federal agency to be the day-to-day integrator of the overall federal effort regarding climate science and services—and makes recommendations on how to achieve those factors. Other respondents to our questionnaire, however, were less enthusiastic about the creation of a climate service. Some voiced skepticism about whether it was feasible to consolidate climate information, and others said that such a system would be too rigid and may get bogged down in lengthy review processes. Furthermore, certain officials stated that building such capacity may not be the most effective place to focus federal efforts because the information needs of decision makers vary so much by jurisdiction. Several officials noted that climate change is an issue that requires a multidisciplinary response, and a single federal service may not be able to supply all of the necessary expertise. For example, one federal official stated that the information needs of Bureau of Reclamation water managers are quite different from the needs of Bureau of Land Management rangeland managers, which are different from the needs of all other resource management agencies and programs. The official stated that it seems highly unlikely that a single federal service could effectively identify and address the diverse needs of multiple agencies. Several respondents also said that having one preeminent source for climate change information and modeling could stifle contrary ideas and alternative viewpoints. Moreover, several officials who responded to our questionnaire were concerned that a climate service could divert attention and resources from current adaptation efforts by reinventing duplicative processes without making use of existing structures. The 2009 NRC report on informing decisions in a changing climate recommends that the federal government’s adaptation efforts should be undertaken through a new integrated interagency initiative with both service and research elements but that such an initiative should not be centralized in a single agency. Doing so, according to this report, would disrupt existing relationships between agencies and their constituencies and formalize a separation between the emerging science of climate response and fundamental research on climate and the associated biological, social, and economic phenomena. Furthermore, the report states that a climate service located in a single agency and modeled on the weather service would by itself be less than fully effective for meeting the national needs for climate-related decision support. The NRC report also notes that such a climate service would not be user-driven and so would likely fall short in providing needed information, identifying and meeting critical decision support research needs, and adapting adequately to changing information needs. We have not made recommendations regarding the creation of a climate service within NOAA or any other agency or interagency body, although the provision of climate data and services will be an important consideration in future governmentwide strategic planning efforts, particularly in an era of declining budgets. Federal strategic planning efforts could be improved for many aspects of the climate change enterprise. Our October 2009 report on climate change adaptation concluded that, to be effective, related federal efforts must be coordinated and directed toward a common goal. This report recommended the development of a strategic plan to guide the nation’s efforts to adapt to a changing climate, including the identification of mechanisms to increase the capacity of federal, state, and local agencies to incorporate information about current and potential climate change impacts into government decision making. Some actions have subsequently been taken to improve federal adaptation efforts, but our May 2011 report on climate change funding found that federal officials do not have a shared understanding of strategic governmentwide priorities. This report recommended, among other things, the clear establishment of federal strategic climate change priorities, including the roles and responsibilities of the key federal entities, taking into consideration the full range of activities within the federal climate change enterprise. In other reports, we also noted the need for improved coordination of climate- related activities. For example, our April 2010 report on environmental satellites concluded that gaps in satellite coverage, which could occur as soon as 2015, are expected to affect the continuity of important climate and space weather measurements. In that report, we stated that, despite repeated calls for interagency strategies for the long-term provision of environmental data from satellites (both for climate and space weather purposes), our nation still lacks such plans. Of particular importance in adaptation are planning decisions involving physical infrastructure projects, which require large capital investments and which, by virtue of their anticipated lifespan, will have to be resilient to changes in climate for many decades. The long lead time and long life of large infrastructure investments require such decisions to be made well before climate change effects are discernable. Our ongoing work for the Senate Committee on Environment and Public Works Subcommittee on Oversight and Subcommittee on Transportation and Infrastructure will explore this issue by reviewing the extent to which federal, state, and local authorities consider the potential effects of climate change when making infrastructure investment decisions. Chairman Begich, Ranking Member Snowe, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to respond to any questions that you or other Members of the Subcommittee may have. For further information about this testimony, please contact David Trimble at (202) 512-3841 or trimbled@gao.gov. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. Barb Patterson, Anne Hobson, Richard Johnson, Ben Shouse, Jeanette Soares, Kiki Theodoropoulos, and Joseph Dean “Joey” Thompson also made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Climate change is a complex, crosscutting issue that poses risks to many existing environmental and economic systems, including agriculture, infrastructure, ecosystems, and human health. A 2009 assessment by the United States Global Change Research Program (USGCRP) found that climate-related changes--such as rising temperature and sea level--will combine with pollution, population growth, urbanization, and other social, economic, and environmental stresses to create larger impacts than from any of these factors alone. According to the National Academies, USGCRP, and others, greenhouse gases already in the atmosphere will continue altering the climate system into the future, regardless of emissions control efforts. Therefore, adaptation--defined as adjustments to natural or human systems in response to actual or expected climate change--is an important part of the response to climate change. This testimony addresses (1) the data challenges that federal, state, and local officials face in their efforts to adapt to a changing climate, (2) the actions federal agencies could take to help address these challenges, and (3) federal climate change strategic planning efforts. The information in this testimony is based on prior work, largely on GAO's recent reports on climate change adaptation (GAO-10-113) and federal climate change funding (GAO-11-317). These reports are based on, among other things, analysis of studies, site visits to areas pursuing adaptation efforts, and responses to a web-based questionnaire sent to federal, state, and local officials. As GAO reported in October 2009, challenges from insufficient site-specific data--such as local projections--make it hard for federal, state, and local officials to predict the impacts of climate change, and thus hard to justify the current costs of adaptation efforts for potentially less certain future benefits. Based on responses from a diverse array of federal, state, and local officials knowledgeable about adaptation, related challenges generally fit into two main categories: (1) translating climate data--such as projected temperature and precipitation changes--into information that officials need to make decisions and (2) the difficulty in justifying the current costs of adaptation with limited information about future benefits. Federal actions to provide and interpret site-specific information would help address data challenges associated with adaptation efforts, based on responses to GAO's web-based questionnaire sent to federal, state, and local officials and other materials analyzed for its October 2009 report. In addition to several potential federal actions identified as useful by respondents to GAO's questionnaire, including the development of state and local climate change vulnerability assessments, GAO's 2009 report also contained information about the creation of a federal climate service. Specifically, about 61 percent (107 of 176) of respondents rated the "creation of a federal service to consolidate and deliver climate information to decision makers to inform adaptation efforts" as very or extremely useful. Respondents offered a range of potential strengths and weaknesses for such a service. For example, several respondents stated that a climate service would help consolidate information and provide a single information resource for local officials. However, some respondents to GAO's questionnaire voiced skepticism about whether it was feasible to consolidate climate information, and others stated that such a service would be too rigid and may get bogged down in lengthy review processes. GAO has not made recommendations regarding the creation of a climate service within the National Oceanic and Atmospheric Administration or any other agency or interagency body. Federal strategic planning efforts could be improved for many aspects of the climate change enterprise. For example, GAO's October 2009 report on climate change adaptation concluded that, to be effective, related federal efforts must be coordinated and directed toward a common goal. This report recommended the development of a strategic plan to guide the nation's efforts to adapt to a changing climate, including the identification of mechanisms to increase the capacity of federal, state, and local agencies to incorporate information about current and potential climate change impacts into government decision making. Some actions have subsequently been taken to improve federal adaptation efforts, but GAO's May 2011 report on climate change funding found that federal officials do not have a shared understanding of strategic governmentwide priorities.

The United States has historically sought to attract international students to its colleges and universities. In recent years international students have earned about one-third or more of all of the U.S. degrees at both the master’s and doctoral levels in several of the science, technology, engineering, and mathematics (STEM) fields. In academic year 2002-2003 alone, international students earned between 45 percent and 57 percent of all the STEM degrees in the United States. Several federal agencies coordinate efforts to attract and bring international students to the United States and implement related requirements. The Department of State (State) manages the student visa application process, administers some student exchange programs, offers grants to facilitate international exchanges, and provides information promoting educational opportunities in the United States. State’s Bureau of Educational and Cultural Affairs supports a global network of more than 450 advising centers around the world that provide comprehensive information about educational opportunities in the United States and guidance on how to access those opportunities. In addition, the Undersecretary for Public Diplomacy and Public Affairs has undertaken ongoing efforts at outreach. For example, the office has organized several delegations of American university presidents to travel overseas with the Undersecretary in order to emphasize the United States’ interest in welcoming international students. The Department of Homeland Security enforces immigration laws and oversees applications for changes in immigration status. It also administers the Student and Exchange Visitor Information System (SEVIS), an Internet-based system that maintains data on international students and exchange visitors before and during their stay in the United States. Finally, the Department of Education (Education) sponsors initiatives to encourage academic exchanges between the United States and other countries, and the Department of Commerce offers various activities to help U.S. educational institutions market their programs abroad. Students or exchange visitors interested in studying in the United States must first be admitted to a U.S. school or university before starting the visa process. Most full-time students enter the United States under temporary visas, which usually permit them to stay for the duration of their studies but may require renewals if they return home before their studies are complete. In order to apply for a visa at a U.S. embassy or consulate, students are required to submit a SEVIS -generated document issued by a U.S. college or university or State-designated sponsor organization when they apply for a visa. State advises student applicants to apply early for a student or exchange visitor visa to make sure that there is sufficient time to obtain an appointment for a visa interview and for visa processing. Among the long-standing requirements for students applying for a visa is that they demonstrate an “intent to return” to their country of origin after they complete their studies. Graduates who wish to stay and work in the United States beyond the time allowed by their student visas generally need to receive approval for a change in status, for example, through a temporary work visa or through permanent residency. Although the United States continues to enroll more international students than any other country, the number of international students enrolled in U.S. higher education institutions leveled off and even dropped slightly after 2001, as shown in figure 1. Figure 2 shows that the U.S. share of international students worldwide decreased between 2000 and 2004. According to the Institute of International Education, the decline in the number of international students attending U.S. higher education institutions between 2002 and 2003 was the first drop in over 30 years. While some preliminary data suggest that international student enrollment numbers may be rebounding, enrollments have yet to return to previous levels. Nevertheless, the United States continues to be a prime study destination for international students for numerous reasons: its high- quality higher education institutions, top-ranked graduate programs, strong research funding, English-language curriculum, and a diverse foreign-born faculty. As worldwide demand for higher education continues to rise, changes in the global higher education landscape have provided students with more options. For example, technological advancements have spurred online courses and even completely online programs that cater largely to nontraditional students having work and family commitments. Between 1995 and 2001, enrollment in distance education at the college level nearly quadrupled to over 3 million students, according to Education’s most recent data. In addition, international partnerships allow institutions to share faculty members and facilitate study abroad opportunities. International branch campuses now provide international students the opportunity to receive an American education without leaving their home country. Greater competition has prompted some countries to embrace instruction in English and encouraged other systems to expand their recruiting activities and incentives. Germany alone offers nearly 400 courses in English that are geared toward international students. In terms of recruiting, several of the participants during our global competitiveness and higher education forum suggested that some countries appear more committed to attracting international students than the United States or are now competing with the United States for the best and the brightest students. Japan offers the same subsidized tuition rates to international students as domestic students, while Singapore offers all students tuition grants covering up to 80 percent of tuition fees as long as they commit to working in Singapore for 3 years after graduation. France and Japan have also strengthened and expanded their scholarship programs for international students. Some countries’ recruiting efforts include providing scholarships to international students who may not be able to afford the costs of obtaining a higher education degree in the United States. In addition, some countries have also developed strategic plans or offices that address efforts to attract international students. The German Academic Exchange Service and EduFrance offer examples where government agencies have been tasked with international student recruitment. Participants at GAO’s forum on global competitiveness expressed concerns that the United States lacked such a national strategy for recruiting international students and emphasized a need to both explore new sources of international students as well as cultivate U.S. domestic capacity. As the cost of attending college in the United States rises, international students may be discouraged from coming here to study. Higher education in the United States ranks among the most expensive in the world. As shown from OECD data in table 1, in 2003-2004 annual average tuition at public U.S. colleges and universities ($4,587) was second only to Australia ($5,289) and more than 2.5 times higher than Europe’s system with the highest tuition fees, that of the United Kingdom. In terms of private higher education providers, U.S. institutions ranked the highest at more than $17,000 per year followed by Australia ($13,420), Italy ($3,992), and Portugal ($3,803). Moreover, student costs at U.S. colleges and universities continue to rise. Figure 3 depicts average undergraduate tuition and room and board costs between 1976 and 2004 for full-time students in degree-granting programs at both 4-year public and private higher education institutions as well as public 2-year institutions. Average costs for private colleges and universities have risen the most since 1990, from $13,237 to $26,489. However, in percentage terms the most growth took place at 4-year public institutions; the change between 1990 and 2004 was approximately 118 percent compared to a 100 percent increase at 4-year privates and an 83 percent increase at 2-year institutions. International students generally do not rely on U.S. federal funding to study in the United States. According to the Institute of International Education’s Open Doors 2004/2005 report, which provides data on international student mobility patterns from U.S. universities, an estimated 71 percent of all international students reported their primary source of funding coming from personal and family sources or other sources outside of the United States. The effects of high and rising tuition and other factors on international enrollment patterns are difficult to estimate, but some policymakers are concerned that costs may be discouraging some international students from coming to U.S. higher education institutions. After September 11, State and Homeland Security, as well as other agencies, took various steps to strengthen the visa process as an antiterrorism tool. This has made the visa process more robust, but may have contributed to real and perceived barriers for international students as well as fueled perceptions that international students were not welcome. Almost all visa applicants must now be interviewed by a consular adjudicating officer at a U.S. embassy or post; this requirement has both affected the number of visas issued and extended wait times for visas under certain circumstances. We have reviewed aspects of the visa process and have made many recommendations to strengthen the process in a way that reduces barriers for international students while balancing national security interests. In October 2002 we cited the need for a clear policy on how to balance national security concerns with the desire to facilitate legitimate travel when issuing visas and made several recommendations to help improve the visa process. In 2003, we reported that the Departments of State, Homeland Security, and Justice could more effectively manage the visa process if they had clear and comprehensive policies and procedures as well as increased agency coordination and information sharing. In 2005 we reported on State’s management of J-1 exchange programs. Separately in 2005, we reported on the department’s efforts to improve the time required to process visas for international science students and scholars as well as others. In 2004 we found that the time to adjudicate a visa depended largely on whether an applicant had to undergo a Visas Mantis security check. Visas Mantis security checks target foreigners who might be involved in violation or evasion of U.S. laws by exporting goods, software, technology, or sensitive information, aiming to prevent proliferation of weapons of mass destruction and conventional weapons. Between January 2004 and June 2006, almost 28 percent of all visa applications sent for Mantis security checks were for students or exchange participants. State has acknowledged that long wait times may discourage legitimate travel to the United States, potentially costing the country billions of dollars in economic benefits, including from foreign students, and adversely influencing foreign citizens’ impressions and opinions of our nation. Much progress has been made over the years with respect to the visa process. Since 2002, State and other agencies have implemented many of our recommendations aimed at strengthening the visa process as an antiterrorism tool while improving processes to facilitate legitimate travel. In particular, State has issued standard operating procedures, in consultation with Homeland Security, to inform consular officers on issues such as special security checks and student visa requirements. In 2005, we reported a significant decline in both Visas Mantis processing times and cases pending more than 60 days. Recent visa data show an increase in the number of student visas issued in the last few years. According to State Department data, the combined student visa issuance levels for fiscal year 2006 increased by about 20 percent from fiscal year 2002. See figure 4 for the issuance trends for individual student visa categories. Broader efforts to facilitate travel to the United States for international students have also been implemented. State has expedited interviews for students. In addition, the length of time that some visa clearances are valid has been extended. In February 2007, State issued guidance to posts that applicants should receive an appointment for a student visa interview within 15 days or less. We are continuing to study aspect of these issues, including visa delays and Visas Mantis security checks, which we will be reporting on in the coming months. The United States must maintain an appropriate balance between protecting national security interests and ensuring our long-term competitiveness. The United States has relied on undergraduate and graduate students from other countries to support both economic and foreign policy interests. Changes designed to protect national security in the wake of September 11 may have contributed to real and perceived barriers for international students, and the subsequent decline in international enrollments raises concerns about the long-term competitiveness of U.S. colleges and universities. Rising U.S. tuition costs and growing higher education options worldwide further demonstrate that the United States cannot take its position as the top destination for international students for granted. While federal efforts to reduce barriers for international students have helped, monitoring current trends and federal policies is essential to ensuring that the United States continues to obtain talented international students in the face of greater global competition. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the subcommittees may have at this time. For further information regarding this testimony, please contact me at (202) 512-7215. Individuals making key contributions to this testimony include Sherri Doughty, Carlo Salerno, Marissa Jones, John Brummet, Eugene Beye, Carmen Donohue, Eve Weisberg, Melissa Pickworth, and Susannah Compton. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

More international students obtain a higher education in the United States than in any other country, and they make valuable contributions while they are here. For those students returning home after their studies, such exchanges support federal public diplomacy efforts and can improve understanding among nations. International students have earned about one-third or more of all U.S. degrees at both the master's and doctoral levels in several of the science, technology, engineering, and mathematics fields. Yet recent trends, including a drop in international student enrollment in U.S. colleges and universities, and policy changes after September 11, 2001, have raised concerns about whether the United States will continue to attract talented international students to its universities. This testimony is based on ongoing and published GAO work. It includes themes from a September 2006 Comptroller General's forum on current trends in international student enrollment in the United States and abroad. Invitees to the forum included experts from the Congress, federal agencies, universities, research institutions, higher education organizations, and industry. GAO identified key issues that may affect the United States' ability to continue attracting the world's most talented international students to our universities and colleges. First, the global higher education landscape is changing and providing more alternatives for students, as other countries expand their educational capacity and technology-based distance learning opportunities increase. For example, enrollment in college-level distance education has nearly quadrupled since 1995. In addition, U.S. universities are establishing branch campuses in other countries and partnerships with international institutions, allowing international students to receive a U.S. education without leaving home. Greater competition has prompted some countries to offer courses in English and to expand their recruiting activities and incentives. Some countries also have developed strategic plans or offices focused on attracting international students. Second, the cost of obtaining a U.S. degree is among the highest in the world and rising, which may discourage international students. Average tuition in 2003 at public U.S. colleges and universities was second only to Australia. Moreover, tuition and associated costs continue to rise. While the effects of high and rising costs and related factors are difficult to estimate, some policymakers are concerned they may be discouraging international students from coming to the United States. Lastly, visa policies and procedures, tightened after September 11 to protect our national security, contributed to real and perceived barriers for international students. Post-September 11 changes included a requirement that almost all visa applicants be interviewed, affecting the number of visas issued and extending wait times for visas under certain circumstances. GAO has made several recommendations to strengthen the visa process in a way that reduces barriers for international students while balancing national security, and recent changes have improved the process. Processing times for certain security reviews have declined, and recent data show more student visas issued in the last few years. The Department of State also has taken steps to ease the burden on students, including expediting interviews and extending the length of time that some visa clearances are valid. We are continuing to study aspects of these issues. The United States must maintain an appropriate balance between protecting national security interests and ensuring our long-term competitiveness. Monitoring current trends and federal policies is essential to ensuring that the United States continues to obtain talented international students in the face of greater global competition.

Two “secret shopper” surveys of bank and thrift sales of mutual funds have been issued since we released our report. One was done by a private research organization called Prophet Market Research & Consulting and was completed in April 1996. The other was done for FDIC by another research organization, Market Trends, Inc., and was completed May 5, 1996. Both surveys indicated that many banks and thrifts still were not fully disclosing to their customers the risks associated with mutual fund investing. The results of the FDIC-sponsored survey, which was the most comprehensive, indicated that, in about 28 percent of the 3,886 in-person visits, bank and thrift representatives did not disclose to the shoppers that nondeposit investment products, including mutual funds, are not insured by FDIC. The results were worse for the 3,915 telephone contacts—with no disclosure in about 55 percent of the contacts. Similarly, in about 30 percent of the in -person visits, bank and thrift representatives did not inform shoppers that nondeposit investment products were not deposits or other obligations of, or guaranteed by, the institution (about 60 percent nondisclosure for telephone contacts). Finally, in about 9 percent of the in-person visits, bank and thrift representatives did not tell shoppers that their investment was subject to loss, including loss of principal (about 39 percent nondisclosure for telephone contacts). The survey’s findings on the physical location of the mutual fund sales area were nearly the same as ours, with about 37 percent of the institutions not clearly having separated the mutual fund sales area from the deposit-taking area. The survey’s findings reaffirm our earlier findings and indicate that a significant number of banks and thrifts continue to inadequately disclose four basic risks associated with mutual fund investing. Neither the FDIC-sponsored survey nor ours followed the sales process through to the point at which a mutual fund was purchased and an account was opened. However, the interagency guidelines emphasize that bank customers should clearly and fully understand the risks of investing in mutual funds, and that these risks should be orally disclosed to the customer during any sales presentation. Written disclosures or other documentation are to be available to customers during the sales process that may eventually fully inform them of the risks involved. Nevertheless, making these disclosures orally during initial sales presentations is particularly important because written disclosures may not always be read or understood until after the investors’ funds are committed, if at all. In responding to our report, the Federal Reserve and OCC indicated that bank practices generally complied with the interagency guidelines by mid-1995. However, FDIC’s survey results indicated that many banks and thrifts still need to improve their compliance with the guidelines so that their customers are adequately informed of the risks associated with mutual fund investing. According to banking and securities regulators, additional actions are being planned or taken to improve disclosures to bank customers. Some of these actions affect only those banks or thrifts under one regulator’s jurisdiction—such as FDIC’s efforts to improve its data systems to provide its examiners up-to-date information for more targeted examinations, or each regulator’s efforts to improve its examination guidelines. Other efforts are also being undertaken by all four bank and thrift regulators. These interagency efforts include efforts to adopt requirements that bank personnel engaged in the sale of nondeposit investment products take the securities industry’s standard qualifying examinations, better training for bank personnel selling uninsured investment products, reexamination of the interagency policy statement on mutual fund sales. business, and pass relevant qualifications examinations administered for the industry by NASD. The Securities Exchange Act of 1934 excludes banks from its broker-dealer registration requirements. As a result, banks have been able to choose whether to have their own employees sell mutual funds without the need to be associated with a Securities and Exchange Commission (SEC)-registered broker-dealer or subject to NASD oversight. If bank employees are to take NASD’s qualifying examination as the banking regulators propose, they are not to be registered with NASD because they would not be associated with a broker-dealer. However, under the proposal, they will have met the same initial qualifications as NASD-registered representatives. In addition, to maintain their qualifications, they would be subject to the same continuing education requirements imposed on NASD-registered representatives. FDIC officials told us that, in addition to the NASD testing and education requirements, the banking regulators plan to do further training to improve bank and thrift employees’ awareness of the importance of complying with the interagency guidelines. They said that although they found better compliance by NASD-registered representatives, the difference between these representatives and other employees was small, indicating that additional training might help further improve compliance. Banking regulators told us that efforts to reexamine the interagency policy statement are focused on clarifying (1) what situations do or do not constitute a sales presentation and (2) what the institution’s obligation is in assuring that an investment recommendation meets the customer’s needs. An FDIC official told us that the banking regulators want to make the interagency statement less vague so that banks and thrifts can better understand what is expected of them and their employees. restrictions on brokers’ use of confidential financial information from bank or thrift customer files were stricter than the interagency guidance and NASD’s proposed prohibition on the payment of referral fees by broker-dealers to employees of the bank differed from the interagency guidance, which allows payment of these fees. After analyzing nearly 300 comment letters, NASD made changes to its proposed rules. The revised proposal defines confidential financial information and allows its use, but only with the prior written approval of the customer; the prohibition on referral fees remains. NASD forwarded its revised proposal to SEC for approval. SEC published the proposal for public comment and received 86 comment letters by the end of the comment period in May 1996. Most of the letters were from banking organizations or bank-affiliated broker-dealers. SEC is currently analyzing the comment letters before deciding whether to approve the proposed rules. Ensuring that salespersons provide bank customers with appropriate risk disclosures during all mutual fund sales presentations presents a difficult challenge to regulators and to banks and thrifts. Over time, this task may become easier as distinctions among financial service providers continue to fade and customers become more aware of the differences between insured and uninsured products. The bank and securities regulators’ proposed actions for additional training of investment representatives, requiring testing of employees, and reexamining the interagency guidelines should help improve bank and thrift compliance with disclosures required by these guidelines. However, additional steps, which may have the potential to help improve compliance with the risk disclosure guidelines, could also be taken. Such actions, for example, could include regulators (1) continuing to monitor bank and thrift disclosure practices through periodic secret shopper surveys, (2) encouraging banks and thrifts to adopt this kind of testing procedure as part of their own internal compliance audits, if legal concerns can be overcome and it is cost effective; and (3) segmenting and publicizing the results of regulatory reviews of compliance with the interagency guidelines, including the results of secret shopper surveys, when appropriate. sales presentations between customers and bank employees, and they would have difficulty doing so without affecting the customer’s privacy or the performance of the employee. FDIC reported that it plans to evaluate the need for another secret shoppers survey on the basis of the results of bank examinations over the next 2 years. Because of the difficulty in monitoring oral sales presentations through examinations, it seems to us that decisions concerning the need for secret shopper surveys should not be based solely on examination results. Instead, using such surveys to supplement examination results could give banks and thrifts an additional incentive to better ensure that their personnel are providing proper disclosures. Bank regulators told us that some banks are using secret shopper surveys to monitor their own employees. A Federal Reserve official said that banks could make them part of their internal compliance audits. The need for federal regulators to do such surveys may decrease if more banks and thrifts do their own and if disclosure of mutual fund risks improves. Federal regulators could encourage banks and thrifts to adopt these surveys as part of their internal compliance audits if legal concerns can be overcome and it is cost effective. For example, some self-assessment activities, like self-testing, pose a dilemma for lending institutions in that under current law the results of self-testing programs may not be privileged or protected from disclosure to federal regulatory agencies or private litigants. Hence, despite the obvious preventative benefits to be gained from having lenders adopt continuous self-testing programs, many institutions are reluctant to undertake such programs out of fear that the findings could be used as evidence against them, especially by third-party litigants. One way to help resolve this issue would be to remove or diminish the disincentives associated with self-testing by alleviating the legal risks of self-testing when conducted by banks who, in good faith, are seeking to improve their mutual fund risk disclosures. Banking regulators suggested to us that they might also encourage depository institutions to consider methods other than secret shopper surveys to test compliance with disclosure requirements, such as calling their customers to determine if the sales person made the proper disclosures. investors than they are the safety and soundness of a depository institution. Therefore, bank and thrift regulators may want to consider the feasibility of segmenting the results of their reviews of compliance with disclosures required by the interagency guidelines, including the results of any secret shopper surveys, from other examination results and of making those results available to the public. Such segmentation and disclosure is already required in connection with regulators’ assessments of bank and thrift compliance with the Community Reinvestment Act. In summary, the results of our survey and the more recent surveys, indicate that there may be a persistent problem with many banks and thrifts failing to make the basic risk disclosures required under the interagency guidelines. These disclosures are important because they can help investors fully understand the risks of investing in bank mutual funds. Banking regulators and some banks and thrifts are taking steps to better ensure that the required disclosures are made. While these actions are positive, other steps, which may have the potential to help increase compliance with these guidelines and better ensure that investors are adequately informed of the risks of their investment decisions, could also be taken. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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GAO discussed the Federal Deposit Insurance Corporation's (FDIC) survey concerning the risks associated with mutual fund investing. GAO noted that: (1) sales of mutual funds through banks and thrifts have increased dramatically; (2) the value of assets managed by these institutions doubled from $219 billion in December 1993, to $420 billion in March 1996; (3) 2,800 banks sold over $40 billion in both proprietary and nonproprietary mutual fund shares during 1995; (4) in February 1994, FDIC, the Office of the Comptroller of the Currency, the Federal Reserve, and the Office of Thrift Supervision jointly issued guidelines on the policies and procedures for selling nondeposit investment products; (5) these interagency guidelines require that bank and thrift customers be fully informed of the risks of investing in mutual funds; (6) the guidelines also require that banks' mutual fund sales activities be physically separated from bank deposit activities; (7) the results of the FDIC survey indicate that many banks and thrifts are not disclosing the risks associated with mutual fund investing; and (8) all four bank and thrift regulators are making an effort to ensure that bank personnel pass qualifying examinations and receive better training in selling uninsured investment products, and reexamine the current interagency policy on mutual fund sales.

To obtain a full funding grant agreement, a project must first progress through a local or regional review of alternatives, develop preliminary engineering plans, and obtain FTA’s approval for final design. TEA-21 requires that FTA evaluate projects against “project justification” and “local financial commitment” criteria contained in the act (see fig. 1). FTA assesses the project justification and technical merits of a project proposal by reviewing the project’s mobility improvements, environmental benefits, cost-effectiveness, and operating efficiencies. In assessing a project’s local financial commitment, FTA assesses the project’s finance plan for evidence of stable and dependable financing sources to construct, maintain, and operate the proposed system or extension. Although FTA’s evaluation requirements existed prior to TEA-21, the act requires FTA to (1) develop a rating for each criterion as well as an overall rating of “highly recommended,” “recommended,” or “not recommended” and use these evaluations and ratings in approving projects’ advancement toward obtaining grant agreements; and (2) issue regulations on the evaluation and rating process. TEA-21 also directs FTA to use these evaluations and ratings to decide which projects to recommend to the Congress for funding in a report due each February. These funding recommendations are also reflected in DOT’s annual budget proposal. In the annual appropriations act for DOT, the Congress specifies the amounts of funding for individual New Starts projects. Historically, federal capital funding for transit systems, including the New Starts program, has largely supported rail systems. Under TEA-21 the FTA Capital Program has been split 40 percent/40 percent/20 percent among New Starts, Rail Modernization, and Bus Capital grants. Although fixed- guideway bus projects are eligible under the New Starts program, relatively few bus-related projects are now being funded under this program. Although FTA has been faced with an impending transit budget crunch for several years, the agency is likely to end the TEA-21 authorization period with about $310 million in unused commitment authority if its proposed fiscal year 2003 budget is enacted. This will occur for several reasons. First, in fiscal year 2001, the Congress substantially increased FTA’s authority to commit future federal funding (referred to as contingent commitment authority). This allowed FTA to make an additional $500 million in future funding commitments. Without this action, FTA would have had insufficient commitment authority to fund all of the projects ready for a grant agreement. Second, to preserve commitment authority for future projects, FTA did not request any funding for preliminary engineering activities in the fiscal year 2002 and 2003 budget proposals. According to FTA, it had provided an average of $150 million a year for fiscal years 1998 through 2001 for projects’ preliminary engineering activities. Third, FTA took the following actions that had the effect of slowing the commitment of funds or making funds available for reallocation: FTA tightened its review of projects’ readiness and technical capacity. As a result, FTA recommended fewer projects for funding than expected for fiscal years 2002 and 2003. For example, only 2 of the 14 projects that FTA officials estimated last year would be ready for grant agreements are being proposed for funding commitments in fiscal year 2003. FTA increased its available commitment authority by $157 million by releasing amounts associated with a project in Los Angeles for which the federal funding commitment had been withdrawn. Although the New Starts program will likely have unused commitment authority through fiscal year 2003, the carry-over commitments from existing grant agreements that will need to be funded during the next authorization period are substantial. FTA expects to enter the period likely covered by the next authorization (fiscal years 2004 through 2009) with over $3 billion in outstanding New Starts grant commitments. In addition, FTA has identified five projects estimated to cost $2.8 billion that will likely be ready for grant agreements in the next 2 years. If these projects receive grant agreements and the total authorization for the next program is $6.1 billion—-the level authorized under TEA-21—most of those funds will be committed early in the authorization period, leaving numerous New Starts projects in the pipeline facing bleak federal funding possibilities. Some of the projects anticipated for the next authorization are so large they could have considerable impact on the overall New Starts program. For example, the New York Long Island Railroad East Side Access project may extend through multiple authorization periods. The current cost estimate for the East Side Access project is $4.4 billion, including a requested $2.2 billion in New Starts funds. By way of comparison, the East Side Access project would require about three times the total and three times the federal funding of the Bay Area Rapid Transit District Airport Extension project, which at about $1.5 billion was one of the largest projects under TEA-21. In order to manage the increasing demand for New Starts funding, several proposals have been made to limit the amount of New Starts funds that could be applied to a project, allowing more projects to receive funding. For instance, the President’s fiscal year 2002 budget recommended that federal New Starts funding be limited to 50 percent of project costs starting in fiscal year 2004. (Currently, New Starts funding—and all federal funding—is capped at 80 percent.) A 50 percent New Starts cap would, in part, reflect a pattern that has emerged in the program. Currently, few projects are asking for the maximum 80 percent federal New Starts share, and many have already significantly increased the local share in order to be competitive under the New Starts program. In the last 10 years, the New Starts share for projects with grant agreements has been averaging about 50 percent. In April 2002, we estimated that a 50 percent cap on the New Starts share for projects with signed full funding grant agreements would have reduced the federal commitments to these projects by $650 million. Federal highway funds such as Congestion Mitigation and Air Quality funds can still be used to bring the total federal funding up to 80 percent. However, because federal highway funds are controlled by the states, using these funds for transit projects necessarily requires state- transit district cooperation. The potential effect of changing the federal share is not known. Whether a larger local match for transit projects could discourage local planners from supporting transit is unknown, but local planners have expressed this concern. According to transit officials, some projects could accommodate a higher local match, but others would have to be modified, or even terminated. Another possibility is that transit agencies may look more aggressively for ways to contain project costs or search for lower cost transit options. With demand high for New Starts funds, a greater emphasis on lower cost options may help expand the benefits of federal funding for mass transit; Bus Rapid Transit shows promise in this area. Bus Rapid Transit involves coordinated improvements in a transit system’s infrastructure, equipment, operations, and technology that give preferential treatment to buses on urban roadways. Bus Rapid Transit is not a single type of transit system; rather, it encompasses a variety of approaches, including 1) using buses on exclusive busways; or 2) buses sharing HOV lanes with other vehicles; and 3) improving bus service on city arterial streets. Busways—special roadways designed for the exclusive use of buses—can be totally separate roadways or operate within highway rights-of-way separated from other traffic by barriers. Buses on HOV-lanes operate on limited-access highways designed for long-distance commuters. Bus Rapid Transit on Busways or HOV lanes is sometimes characterized by the addition of extensive park and ride facilities along with entrance and exit access for these lanes. Bus Rapid Transit systems using arterial streets may include lanes reserved for the exclusive use of buses and street enhancements that speed buses and improve service. During the review of Bus Rapid Transit systems that we completed last year, we found at least 17 cities in the United States were planning to incorporate aspects of Bus Rapid Transit into their operations. FTA has begun to support the Bus Rapid Transit concept and expand awareness of new ways to design and operate high capacity Bus Rapid Transit systems as an alternative to building Light Rail systems. Because Light Rail systems operate in both exclusive and shared right-of-way environments, the limits on their length and the frequency of service are stricter than heavy rail systems. Light Rail systems have gained popularity as a lower-cost option to heavy rail systems, and since 1980, Light Rail systems have opened in 13 cities. Our September 2001 report showed that all three types of Bus Rapid Transit systems generally had lower capital costs than Light Rail systems. On a per mile basis, the Bus Rapid Transit projects that we reviewed cost less on average to build than the Light Rail projects, on a per mile basis. We examined 20 Bus Rapid Transit lines and 18 Light Rail lines and found Bus Rapid Transit capital costs averaged $13.5 million per mile for busways, $9.0 million per mile for buses on HOV lanes, and $680,000 per mile for buses on city streets, when adjusted to 2000 dollars. For the 18 Light Rail lines, capital costs averaged about $34.8 million per mile, ranging from $12.4 million to $118.8 million per mile, when adjusted to 2000 dollars. On a capital cost per mile basis, the three different types of Bus Rapid Transit systems have average capital costs that are 39 percent, 26 percent, and 2 percent of the average cost of the Light Rail systems we reviewed. The higher capital costs per mile for Light Rail systems are attributable to several factors. First, the Light Rail systems contain elements not required in the Bus Rapid Transit systems, such as train signal, communications, and electrical power systems with overhead wires to deliver power to trains. Light Rail also requires additional materials needed for the guideway—rail, ties, and track ballast. In addition, if a Light Rail maintenance facility does not exist, one must be built and equipped. Finally, Light Rail vehicles, while having higher carrying capacity than most buses, also cost more—about $2.5 million each. In contrast, according to transit industry consultants, a typical 40-foot transit bus costs about $283,000, and a higher-capacity bus costs about $420,000. However, buses that incorporate newer technologies for low emissions or that run on more than one fuel can cost more than $1 million each. We also analyzed operating costs for six cities that operated both Light Rail and some form of Bus Rapid Transit service. Whether Bus Rapid Transit or Light Rail had lower operating costs varied considerably from city to city and depended on what cost measure was used. In general, we did not find a systematic advantage for one mode over the other on operating costs. The performance of the Bus Rapid Transit and Light Rail systems can be comparable. For example, in the six cities we reviewed that had both types of service, Bus Rapid Transit generally operated at higher speeds. In addition, the capacity of Bus Rapid Transit systems can be substantial; we did not see Light Rail having a significant capacity advantage over Bus Rapid Transit. For example, the highest ridership we found on a Light Rail line was on the Los Angeles Blue Line, with 57,000 riders per day. The highest Bus Rapid Transit ridership was also in Los Angeles on the Wilshire-Whittier line, with 56,000 riders per day. Most Light Rail lines in the United States carry about half the Los Angeles Blue Line ridership. Bus Rapid Transit and Light Rail each have a variety of other advantages and disadvantages. Bus Rapid Transit generally has the advantages of (1) being more flexible than Light Rail, (2) being able to phase-in service rather than having to wait for an entire system to be built, and (3) being used as an interim system until Light Rail is built. Light Rail has advantages, according to transit officials, associated with increased economic development and improved community image, which they believe justify higher capital costs. However, building a Light Rail system can have a tendency to provide a bias toward building additional rail lines in the future. Transit operators with experience in Bus Rapid Transit systems told us that one of the challenges faced by Bus Rapid Transit is the negative stigma potential riders attach to buses. Officials from FTA, academia, and private consulting firms also stated that bus service has a negative image, particularly when compared with rail service. Communities may prefer Light Rail systems in part because the public sees rail as faster, quieter, and less polluting than bus service, even though Bus Rapid Transit is designed to overcome those problems. FTA officials said that the poor image of buses was probably the result of a history of slow bus service due to congested streets, slow boarding and fare collection, and traffic lights. FTA believes that this negative image can be improved over time through bus service that incorporates Bus Rapid Transit features. A number of barriers exist to funding improved bus systems such as Bus Rapid Transit. First, an extensive pipeline of projects already exists for the New Starts Program. Bus Rapid Transit is a relatively new concept, and many potential projects have not reached the point of being ready for funding consideration because many other rail projects are further along in development. As of March 2002, only 1 of the 29 New Starts projects with existing, pending or proposed grant agreements uses Bus Rapid Transit, and 1 of the 5 other projects near approval plans to use Bus Rapid Transit. Some Bus Rapid Transit projects do not fit the exclusive right-of- way requirements of the New Starts Program and thus would not be eligible for funding consideration. FTA also administers a Bus Capital Program with half the funding level of the New Starts Program; however, the existing Bus Capital Program is made up of small grants to a large number of recipients, which limits the program’s usefulness for funding major projects. Although FTA is encouraging Bus Rapid Transit through a Demonstration Program, this program does not provide funding for construction but rather focuses on obtaining and sharing information on projects being pursued by local transit agencies. Eleven Bus Rapid Transit projects are associated with this demonstration program.

The Federal Transportation Administration's (FTA) New Starts Program helps pay for designing and constructing rail, bus, and trolley projects through full funding grant agreements. The Transportation Equity Act for the 21st Century (TEA-21), authorized $6.1 billion in "guaranteed" funding for the New Starts program through fiscal year 2003. Although the level of New Starts funding is higher than ever, the demand for these resources is also extremely high. Given this high demand for new and expanded transit facilities across the nation, communities need to examine approaches that stretch the federal and local dollar yet still provide high quality transit services. Although FTA has been faced with an impending transit budget crunch for several years, it is likely to end the TEA-21 authorization period with $310 million in unused New Starts commitment authority if its proposed fiscal year 2003 budget is enacted. Bus Rapid Transit is designed to provide major improvements in the speed and reliability of bus service through barrier-separated busways, buses on High Occupancy Vehicle Lanes, or improved service on arterial streets. GAO found that Bus Rapid Transit was a less expensive and more flexible approach than Light Rail service because buses can be rerouted more easily to accommodate changing travel patterns. However, transit officials also noted that buses have a poor public image. As a result, many transit planners are designing Bus Rapid Transit systems that offer service that will be an improvement over standard bus service (see GAO-02-603).

information, raising concern over issues related to privacy and confidentiality. The federal system of protections was developed largely in response to biomedical and behavioral research that caused harm to human subjects. To protect the rights and welfare of human subjects in research, the Common Rule requires organizations conducting federally supported or regulated research to establish and operate IRBs, which are, in turn, responsible for implementing federal requirements for research conducted at or supported by their institutions. IRBs are intended to provide basic protections for people enrolled in federally supported or regulated research. Most of the estimated 3,000 to 5,000 IRBs in the United States are associated with a hospital, university, or other research institution, but IRBs also exist in managed care organizations (MCO), government agencies, and as independent entities employed by the organizations conducting the research. IRBs are made up of both scientists and nonscientists. The organizations that we contacted primarily conduct health research to advance biomedical science, understand health care use, evaluate and improve health care practices, and determine patterns of disease. These organizations use health-related information on hundreds of thousands, and in some cases millions, of individuals in conducting their research. The MCOs and integrated health systems in our study use medical records data, which are generated in the course of treating patients, to conduct epidemiological research and health services research, such as outcomes and quality improvement studies. For example, one MCO, in conducting a quality improvement study, determined from its claims database whether patients with vascular disease were receiving appropriate medications and reported the findings to patients’ physicians to assist in the treatment of their patients. The pharmaceutical and biotechnology companies that we contacted also conduct health services and epidemiological research; but unlike MCOs and integrated health systems, they rely on data from other organizations for this type of research. One pharmaceutical company’s epidemiology department, for example, conducts large-scale studies using data from MCOs and health information organizations to monitor the effectiveness of drugs on certain populations. For pharmacy benefit management (PBM) firms, which administer prescription drug benefits for health insurance plans, a primary source of data is prescription information derived from prescriptions dispensed by mail or claims received from retail pharmacies. PBMs design and evaluate programs that are intended to improve the quality of care for patients who have specific diseases or risk factors while controlling total health care costs. One PBM in our study, for example, develops disease management programs; these programs depend on the ability to identify individuals with conditions, such as diabetes, that require more intensive treatment management. The health information organizations that we contacted rely solely on data from other organizations. Typically, they collect medical claims data from their clients or obtain it from publicly available sources, such as Medicare and Medicaid. They may also acquire data through employer contracts that stipulate that all the employers’ plans provide complete data to a health information organization. Examples of research projects include studies of the effects of low birth weight on costs of medical care and the effectiveness of alternative drug therapies for schizophrenia. Officials at the organizations we contacted believe that many of these studies require personally identifiable information to ensure study validity or to simply answer the study question. For longitudinal studies, researchers may need to track patients’ care over time and link events that occur during the course of treatment with their outcomes. Researchers may also need to link multiple sources of information, such as electronic databases and patient records, to compile sufficient data to answer the research question. For example, officials at one health information organization stated that without patient names or assigned patient codes, it would not have been possible to complete a number of studies, such as the effects of length-of-hospital stay on maternal and child health following delivery and patient care costs of cancer clinical trials. Some of the research conducted by the organizations we contacted must conform to the Common Rule or FDA regulations because it is either supported or regulated by the federal government. Several MCOs obtain grants from various federal agencies, including the Centers for Disease Control and Prevention; one health information organization that we contacted conducts research for federal clients, such as the Agency for Health Care Policy and Research. Some organizations that conduct both federally supported or regulated research and other types of privately funded research choose to apply the requirements uniformly to all studies involving human subjects, regardless of the source of funding. However, some other organizations that carry out both publicly and privately funded research apply the federal rules where required, often relying on IRB review at collaborators’ institutions, but do not apply the rules to their privately funded research. Pharmaceutical and biotechnology companies, for example, rely on the academic medical centers where they sponsor research to have in place procedures for informed consent and IRB review, but they do not maintain their own IRBs. Some organizations conduct certain activities that involve identifiable medical information, but they do not define these activities as research. For example, officials at several MCOs told us that they did not define records-based quality improvement activities as research, so these projects are not submitted for IRB review. But there is disagreement as to how to classify quality improvement reviews, and some organizations do submit these studies for IRB review, where they define the studies as research. Finally, at some organizations, none of the research is covered by the Common Rule or FDA regulations and no research receives IRB review. For example, one PBM in our study, which conducts research for other companies—including developing disease management programs—does not receive federal support and, thus, is not subject to the Common Rule in any of its research. While it does not have an IRB, this PBM uses external advisory boards to review its research proposals. Another type of research that for some companies does not fall under the Common Rule or FDA regulations is research that uses disease or population-related registry data. Pharmaceutical and biotechnology companies maintain such registries to monitor how a particular population responds to drugs and to better understand certain diseases. While many organizations have in place IRB review procedures, recent studies that pointed to weaknesses in the IRB system, as well as the provisions of the Common Rule itself, suggest that IRB reviews do not ensure the confidentiality of medical information used in research. While not focusing specifically on confidentiality, previous studies by GAO and by the Department of Health and Human Services (HHS) Office of Inspector General have found multiple factors that weaken institutional and federal human subjects protection efforts. In 1996, we found that IRBs faced a number of pressures that made oversight of research difficult, including the heavy workloads of and competing professional demands on members who are not paid for their IRB services. Similarly, the Inspector General found IRBs unable to cope with major changes in the research environment, concluding that they review too many studies too quickly and with too little expertise, and recommended a number of actions to improve the flexibility, accountability, training, and resources of IRBs. Under the Common Rule, IRBs are directed to approve research only after they have determined that (1) there are provisions to protect the privacy of subjects and maintain the confidentiality of data, when appropriate, and (2) research subjects are adequately informed of the extent to which their data will be kept confidential. However, according to the Director of the Office for Protection From Research Risks (OPRR), confidentiality protection is not a major thrust of the Common Rule and IRBs tend to give it less attention than other research risks because they have the flexibility to decide when it is appropriate to review confidentiality protection issues. Consistent with federal regulations, the seven IRBs that we contacted told us that they generally waive the informed consent requirements in cases involving medical records-based research. Researchers at the organizations we visited contend that it is often difficult, if not impossible, to obtain the permission of every subject whose medical records are used. As an example, the director of research at one integrated health system described a study that tracked about 30,000 patients over several years to determine hospitalization rates for asthmatic patients treated with inhaled steroids. The IRBs that we contacted told us that they routinely examine all research plans using individually identifiable medical information to determine whether the research is exempt from further review, can receive an expedited review, or requires a full review. Further, in reviewing research using individually identifiable genetic data, two of the IRBs had policies to consider additional confidentiality provisions in approving such research. The actual number of instances in which patient privacy is breached is not fully known. While there are few documented cases of privacy breaches, other reports provide evidence that such problems occur. For example, in an NIH-sponsored study, IRB chairs reported that lack of privacy and lack of confidentiality were among the most common complaints made by research subjects. Over the past 8 years, OPRR’s compliance staff has investigated several allegations involving human subjects protection violations resulting from a breach of confidentiality. In the 10 cases provided to us, complaints related both to research subject to IRB review and to research outside federal protection. In certain cases involving a breach in confidentiality, OPRR has authority to restrict an institution’s authority to conduct research that involves human subjects or to require corrective action. For example, in one investigation, a university inadvertently released the names of participants who tested HIV positive to parties outside the research project, including a local television station. In this case, OPRR required the university to take corrective measures to ensure appropriate confidentiality protections for human subjects. In response, the university revised internal systems to prevent the release of private information in the future. However, in other cases, OPRR determined that it could not take action because the research was not subject to the Common Rule and, thus, it lacked jurisdiction. For example, in a case reported in the media, OPRR staff learned of an experiment that plastic surgeons had performed on 21 patients using two different facelift operations—one on each half of the face—to see which came out better. OPRR staff learned that the study was not approved by an IRB and that the patients’ consent forms did not explain the procedures and risks associated with the experiment. In addition, the surgeons published a journal article describing their research that included before and after photographs of the patients. Because the research was performed in physician practices and was not federally supported, it fell outside the Common Rule and OPRR could take no action. Each organization that we contacted reported that it has taken one or more steps to limit access to personally identifiable information in their research. Many have limited the number of individuals who are afforded access to personally identifiable information or limited the span of time they are given access to the information, or both. Some have used encrypted or encoded identifiers to enhance the protection of research and survey subjects. Most, but not all, of the organizations have additional management practices to protect medical information, including written policies governing confidentiality. Some organizations have also instituted a number of technical measures and physical safeguards to protect the confidentiality of information. Officials from two of the companies that we contacted told us that they did not have written policies to share with us, and two other companies were unable to provide us with such documentation, although officials described several practices related to confidentiality. The organizations that did provide us with documentation appear to use similar management practices and technical measures to protect health information used in their health research, whether they generate patient records or receive them from other organizations. relevant to their studies. In addition to limiting access to certain individuals for specific purposes, some organizations have encrypted or encoded patient information. Researchers at one integrated health system, for example, work with information that has been encoded by computer programmers on the research team—the only individuals who have access to the fully identifiable data. In conducting collaborative research, the organizations that we contacted tend to use special data sets and contracting processes to protect medical information. For example, one MCO, which conducts over half of its research with government agencies and academic and research institutions, transfers data in either encrypted or anonymized form and provides detailed specifications in its contracts that limit use of the data to the specific research project and prohibit collaborators from re-identifying or transferring the data. Generally, company policies define the circumstances under which personally identifiable information may be disclosed and the penalties for unauthorized release of confidential information. Most company policies permit access only to the information that is needed to perform one’s job; 8 of the 12 organizations also require their employees to sign agreements stating that they will maintain the privacy of protected health information. Each organization that we contacted said it uses disciplinary sanctions to address employee violations of confidentiality or failure to protect medical information from accidental or unauthorized access, and an intentional breach of confidentiality could result in employee termination—which may be immediate. But they also pointed out that few employees have been terminated, and when they have, the incidents were not related to the conduct of research. The organizations that we contacted said they use a number of electronic measures to safeguard their electronic health data. Most reported using individual user authentication or personal passwords to ensure users access only the information that they need; some also use computer systems that maintain an electronic record of each employee who accesses medical data. These organizations may also use other technical information system mechanisms, including firewalls, to prevent external access to computer systems. In addition to electronic security, officials at some of the organizations told us they use various security measures to prevent unauthorized physical access to medical records-based information, including computer workstations and servers. Personally identifiable information is often an important component of research using medical records, and the companies we met with furnished many examples of useful research that could not have been conducted without it. Because our study focused on only a limited number of companies—in particular, those that were willing to share information about corporate practices—it is difficult to judge the extent to which their policies may be typical, nor do we know the extent to which their policies are followed. Nevertheless, most of the organizations we surveyed do have policies to limit and control access to medical information that identifies individuals, and many of them have adopted techniques, such as encryption and encoding, to further safeguard individual privacy. However, while reasonable safeguards may be in place in these companies, external oversight of their research is limited. Not all research is subject to outside review, and even in those cases where IRBs are involved, they are not required to give substantial attention to privacy protection. Further, in light of the problems that IRBs have had in meeting current workloads—one of the key findings of our earlier work as well as the work of HHS’ Office of Inspector General—it is not clear that the current IRB-based system could accommodate more extensive review responsibilities. In weighing the desirability of additional oversight of medical records-based research, it will be important to take account of existing constraints on the IRB system and the recommendations that have already been made for changes to that system. This concludes my prepared statement. I will be happy to respond to any questions that you or Members of the Committee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Pursuant to a congressional request, GAO discussed the privacy of medical records used for health research, focusing on: (1) to what extent medical information used for research depends on personally identifiable information; (2) research that is and is not subject to current federal oversight requirements; (3) how the institutional review board (IRB) ensures the confidentiality of health information used in research; and (4) what steps organizations have taken to safeguard information. GAO noted that: (1) the survey revealed that a considerable amount of health research relies on personally identifiable information; (2) while some of this research is subject to IRB review--either because it is federally supported or regulated research or because the organization voluntarily applies federal rules to all of its research--some of the organizations conduct records-based research that is not reviewed by an IRB; (3) the process of IRB review does not ensure the confidentiality of medical information used in research--primarily because the provisions of the Common Rule related to confidentiality are limited; (4) according to recent studies, the IRB system on the whole is strained; and (5) nevertheless, although external review of their research is limited, most of the organizations in GAO's study told GAO that they have various security safeguards in place to limit internal and external access to paper and electronic databases, and many say they have taken measures to ensure the anonymity of research and survey subjects.

Medicare covers medically necessary ambulance services when no other means of transportation to receive health care services is appropriate, given the beneficiary’s medical condition at the time of transport. Medicare pays for both emergency and nonemergency ambulance transports that meet the established criteria. To receive Medicare reimbursement, providers of ambulance services must also meet vehicle and crew requirements. Transport in any vehicle other than an ambulance—such as a wheelchair or stretcher van—does not qualify for Medicare payment. Medicare pays for different levels of ambulance services, which reflect the staff training and equipment required to meet the patient’s needs. Basic life support (BLS) is provided by emergency medical technicians (EMT). Advanced life support (ALS) is provided by paramedics or EMTs with advanced training. ALS with specialized services is provided by the same staff as standard ALS but involves additional equipment. Currently, Medicare uses different payment methods for hospital-based and freestanding ambulance providers. Hospital-based providers are paid based on their reasonable costs. For freestanding providers, Medicare generally pays a rate based on reasonable charges, subject to an upper limit that essentially establishes a maximum payment amount. Freestanding providers can bill separately for mileage and certain supplies. Between 1987 and 1995, Medicare payments to freestanding ambulance providers more than tripled, from $602 million to almost $2 billion, rising at an average annual rate of 16 percent. Overall Medicare spending during that same time increased 11 percent annually. From 1996 through 1998, payments to freestanding ambulance providers stabilized at about $2.1 billion. BBA stipulated that total payments under the fee schedule for ambulance services in 2000 should not exceed essentially the amount that payments would have been under the old payment system. This requirement is known as a budget neutrality provision. In 1997, 11,135 freestanding and 1,119 hospital-based providers billed Medicare for ground transports. The freestanding providers are a diverse group, including private for-profit, nonprofit, and public entities. They include operations staffed almost entirely by community volunteers, public ventures that include a mix of volunteer and professional staff, and private operations using paid staff operating independently or contracting their services to local governments. In our July 2000 report, we noted that about 34 percent were managed by local fire departments. In several communities a quasi-government agency owned the ambulance equipment and contracted with private companies for staff. The majority of air ambulance transports are provided by hospital-based providers. An estimated 275 freestanding and hospital-based programs provide fixed-wing and rotor-wing air ambulance transports, which represent a small proportion (about 5 percent) of total ambulance payments. In our July 2000 report, we noted that several factors characterizing rural ambulance providers may need consideration in implementing an appropriate payment policy. These include: High per-transport costs in low-volume areas. Compared to their urban and suburban counterparts, rural ambulance providers have fewer transports over which to spread their fixed costs because of the low population density in rural areas. Yet, rural providers must meet many of the same basic requirements as other providers to maintain a responsive ambulance service, such as a fully equipped ambulance that is continually serviced and maintained and sufficient numbers of trained staff. As a result, rural providers that do not rely on volunteers generally have higher per-transport costs than their urban and suburban counterparts. Longer distances traveled. A common characteristic of rural ambulance providers is a large service area, which generally requires longer trips. Longer trips increase direct costs from increased mileage costs and staff travel time. They also raise indirect costs because ambulance providers must have sufficient backup services when vehicles and staff are unavailable for extended periods. Current Medicare payment policy generally allows freestanding providers to receive a payment for mileage. Nevertheless, mileage-related reimbursement issues, such as the amount paid for mileage, represent a greater concern to rural providers because of the longer distances traveled. Lack of alternative transportation services. Rural areas may lack alternative transport services, such as taxis, van services, and public transportation, which are more readily available in urban and suburban areas. This situation is complicated by the fact that some localities require ambulance providers to transport in response to an emergency call, even if the severity of the problem has not been established. Because of this situation, some providers transport a Medicare beneficiary whose need for transport does not meet Medicare coverage criteria and must therefore seek payment from the beneficiary or another source. Reliance on Medicare revenue. Medicare payments account for a substantial share of revenue for rural ambulance providers that bill Medicare. Among rural providers, 44 percent of their annual revenue in 1998, on average, was from Medicare, compared to 37 percent for urban providers, according to Project Hope Center for Health Services, a nonprofit health policy research organization. Additionally, for some rural providers, other revenue sources—such as subsidies from local tax revenues, donations, or other fundraising efforts—have not kept pace with increasing costs of delivering the services. Decreasing availability of volunteer staff. Rural ambulance providers traditionally have relied more heavily on volunteer staff than providers in urban or suburban areas. Some communities having difficulty recruiting and retaining volunteers may have had to hire paid staff, which increases the costs of providing services. Medicare’s proposed fee schedule, published in September 2000, reduces the variation in maximum payment amounts to similar providers for the same type of services. The considerable variation that exists in the current payment system does not necessarily reflect expected differences in provider costs. For example, in 1999, the maximum payments for two types of emergency transport—one requiring no specialized services and the other requiring specialized services—were the same in Montana at $231 for freestanding providers. In North Dakota, the maximum payment was about $350 and also did not differ measurably for the two types of transport services. In contrast, South Dakota’s maximum payment for the less intensive transport was $137, which was $30 lower than the payment for the transport requiring specialized services. Per-mile payments also varied widely. For example, in rural South Dakota, the payment was just over $2 per mile, compared to $6 per mile in rural Wyoming. The shift to the proposed fee schedule would narrow the wide variation in payments to ambulance providers for similar services. The proposed schedule includes one fee for each level of service. This fee is not expected to vary among providers except for two possible adjustments— one for geographic wage and price differences and the other based on the beneficiary’s location, rural or urban. As a result, a national fee schedule is likely to provide increased per-trip payments to those providers that under the current system receive payments considerably below the national average and decreased payments to providers with payments that have been substantially above the national average. As part of its mandate, the negotiated rulemaking committee was directed to consider the issue of providing essential ambulance service in isolated areas. The committee recommended a rural payment adjustment to recognize higher costs associated with low-volume providers to ensure adequate access to ambulance services. Consistent with the committee’s recommendation, the proposed fee schedule includes an additional mileage payment for the first 17 miles for all transports of beneficiaries in rural areas. The mileage payment adjustment, however, treats all providers in rural areas identically and does not specifically target providers that offer the only ambulance service for residents in the most isolated areas. As a result, some providers may receive the payment adjustment when they are not the only available source of ambulance service, so the adjustment may be too low for the truly isolated providers. In addition, the proposed rural adjustment is tied to the mileage payment rather than the base rate and, therefore, may not adequately help low- volume providers. Such providers may not have enough transports to enable them to cover the fixed costs associated with maintaining ambulance service. The per-mile cost would not necessarily be higher with longer trips. It is the base rate, which is designed to pay for general costs such as staff and equipment—and not the mileage rate—that may be insufficient for these providers. For that reason, adjusting the base rate rather than the mileage rate would better account for higher per-transport fixed costs. In response to our 2000 report, HCFA stated that it intends to consider alternative adjustments to more appropriately address payment to isolate, essential, low-volume rural ambulance providers. Whether or not a claim for ambulance transport is approved varies among carriers, and these discrepancies can translate into unequal coverage for beneficiaries. In 1998, between 9 percent and 26 percent of claims for payment of emergency and nonemergency ambulance transports were denied among the nine carriers that processed two-thirds of all ambulance claims. Different practices among carriers, including increased scrutiny due to concerns about fraud, may explain some of the variation in denial rates. Following are other inconsistencies in carrier practices cited in our July 2000 report that may help explain denial rate differences: National coverage policy exists only for some situations. Generally, Medicare coverage policies have been set by individual carriers rather than nationally by HCFA. For example, in 1998, the carrier covering ambulance providers in New Jersey and Pennsylvania reimbursed transports at ALS levels where local ordinances mandated ALS as the minimum standard of care for all transports. In contrast, the carrier for an ambulance provider in Fargo, North Dakota, reduced many of the provider’s ALS claims to BLS payment rates, even though a local ordinance required ALS services in all cases. (The carrier’s policy has since changed.) Some carriers were found to have applied criteria inappropriately, particularly for nonemergency transports. For example, for Medicare coverage of a nonemergency ambulance transport, a beneficiary must be bed-confined. In the course of our 2000 study, we found one carrier that processed claims for 11 states applied bed-confined criteria to emergency transports as well as those that were nonemergency. (The carrier’s policy has since changed.) Providers were concerned that carriers sometimes determined that Medicare will cover an ambulance claim based on the patient’s ultimate diagnosis, rather than the patient’s condition at the time of transport. Medicare officials have stated that the need for ambulance services is to be based on the patient’s medical condition at the time of transport, not the diagnosis made later in the emergency room or hospital. Ambulance providers are required to transport beneficiaries to the nearest hospital that can appropriately treat them. Carriers may have denied payments for certain claims because they relied on inaccurate survey information specifying what services particular hospitals offer when determining whether a hospital could have appropriately served a beneficiary. However, the survey information does not always accurately reflect the situation at the time of transport, such as whether a bed was available or if the hospital was able to provide the necessary type of care. Some providers lacked information about how to fill out electronic claims forms correctly. Volunteer staffs in particular may have had difficulty filing claims, as they often lacked experience with the requirements for Medicare’s claims payment process. An improperly completed claim form increases the possibility of a denial. Claims review difficulties are exacerbated by the lack of a national coding system that easily identifies the beneficiary’s health condition to link it to the appropriate level of service (BLS, ALS,or ALS with specialized services). As a result, the provider may not convey the information the carrier needs to understand the beneficiary’s medical condition at the time of pickup, creating a barrier to appropriate reimbursement. Medicare officials have stated that a standardized, mandated coding system would be helpful and the agency has investigated alternative approaches for implementing such a system. The agency contends that using standardized codes would promote consistency in the processing of claims, reduce the uncertainty for providers regarding claims approval, and help in filing claims properly. Overall, the proposed fee schedule will improve the equity of Medicare’s payment for ambulance providers. Payments will likely increase for providers that now receive payments that are lower than average, whereas payments will likely decline for those now receiving payments above the average. In our July 2000 report, we recommended that HCFA modify the payment adjuster for rural transports to ensure that it is structured to address the high fixed costs of low-volume providers in isolated areas, as these providers’ services are essential to ensuring Medicare beneficiaries’ access to ambulance services. HCFA agreed to work with the ambulance industry to identify and collect relevant data so that appropriate adjustments can be made in the future.

The Balanced Budget Act of 1997 required Medicare to change its payment system for ambulance services. In response, the Health Care Financing Administration (HCFA), now called the Centers for Medicare and Medicaid Services (CMS), proposed a fee schedule to standardize payments across provider types on the basis of national rates for particular services. Under the act, the fee schedule was to have applied to ambulance services furnished on or after January 1, 2000. HCFA published a proposed rule in September 2000 and has received public comment, but it has not yet issued a final rule. This testimony discusses the unique concerns of rural ambulance providers and the likely effects of the proposed fee schedule on these providers. Many rural ambulance providers face a set of unique challenges in implementing an appropriate payment policy. Rural providers--particularly those serving large geographic areas with low population density--tend to have high per-trip costs compared with urban and suburban providers. The proposed Medicare fee schedule does not sufficiently distinguish the providers serving beneficiaries in the most isolated rural areas and may not appropriately account for the higher costs of low-volume providers.

The disposal of LLRW is the end of the radioactive material lifecycle that spans production, use, processing, interim storage, and disposal. The nuclear utility industry generates the bulk of this LLRW through the normal operation and maintenance of nuclear power plants, and through the decommissioning of these plants. Other LLRW is generated from medical, industrial, agricultural, and research applications. Common uses of radioactive material are in radiotherapy, radiography, smoke detectors, irradiation and sterilization of food and materials, measuring devices, and illumination of emergency exit signs. In the course of working with these radioactive materials, other material, such as protective clothing and gloves, pipes, filters, and concrete, that come in contact with them will become contaminated and therefore need to be disposed of as LLRW. In the 1960s, the Atomic Energy Commission, a predecessor agency to DOE, began to encourage the development of commercial LLRW disposal facilities to accommodate the increased volume of commercial waste that was being generated. Six such disposal facilities were licensed, two of which, the Richland facility, licensed in 1965, and the Barnwell facility, licensed in 1969, remain today. Each of these facilities is located within the boundaries of or adjacent to a much larger site owned by DOE. The third facility, in Clive, Utah, operated by EnergySolutions (formerly known as Envirocare of Utah), was originally licensed by the state of Utah in 1988 to only accept naturally occurring radioactive waste. In 1991, Utah amended the facility’s license to permit the disposal of some LLRW, and the Northwest Compact agreed to allow the facility to accept these wastes from noncompact states. By 2001, the facility was allowed to accept all types of class A waste. At this time, sufficient available disposal capacity exists for almost all LLRW. However, fast-approaching constraints on the availability of disposal capacity for class B and class C wastes could adversely affect the disposal of many states’ LLRW. Specifically, beginning on June 30, 2008, waste generators in 36 states will be precluded from using the Barnwell disposal facility for their class B and class C LLRW. That facility currently accepts about 99 percent of the nation’s class B and class C commercial LLRW. Although the Barnwell and Richland facilities have more than sufficient capacity to serve waste generators from the 14 states that are members of the facilities’ respective compacts until at least 2050, the remaining 36 states will have no disposal options for their class B and class C LLRW. Although waste generators in these 36 states will no longer have access to Barnwell, they can continue to minimize waste generation, process waste into safer forms, and store waste pending the development of additional disposal options. While NRC prefers the disposal of LLRW, it allows on- site storage as long as the waste remains safe and secure. Since September 11, 2001, both the public’s concern with, and its perception of, risk associated with radioactive release, including that from stored LLRW, have increased. However, should an immediate and serious threat come from any specific location of stored waste, NRC has the authority under the act to override any compact restrictions and allow shipment of the waste to a regional or other nonfederal disposal facility under narrowly defined conditions. Waste minimization techniques and storage can alleviate the need for disposal capacity, but they can be costly. For example, in June 2004 we reported that one university built a $12 million combined hazardous and radioactive waste management facility. Two-thirds of this facility is devoted to the processing and temporary storage of class A waste. Additional disposal capacity for the estimated 20,000 to 25,000 cubic feet of class B and class C LLRW disposed of annually at Barnwell may become available with the opening of a new disposal facility in Texas. This facility has received a draft license and appears to be on schedule to begin operations in 2010. Although the facility may accept some DOE cleanup waste, there is presently no indication that it will be made available to all waste generators beyond the two states that are members of the Texas Compact (Texas and Vermont). In contrast, available disposal capacity for the nation’s class A waste does not appear to be a problem in either the short or long term. Our June 2004 report noted that EnergySolutions’ Clive facility had sufficient disposal capacity, based upon then-projected disposal volumes, to accept class A waste for at least 20 years under its current license. This facility currently accepts about 99 percent of the nation’s class A LLRW. Since our report was issued, domestic class A waste has declined from about 15.5 million cubic feet in 2005 to about 5 million cubic feet in 2007. This decline is primarily attributed to DOE’s completion of several cleanup projects. DOE waste constituted about 50 percent of the total waste accepted by EnergySolutions in 2007. This reduction in projected class A disposal volumes will extend the amount of time the Clive facility can accept class A waste before exhausting its capacity. According to the disposal operator, capacity for this facility has been extended another 13 years, to 33 years of capacity. It is important to note, however, that our June 2004 analysis of available LLRW disposal capacity considered only domestically produced LLRW. We did not consider the impact of imported LLRW on available class A, B, and C disposal capacity at Clive, Barnwell, and Richland. Although disposal capacity at the time of our June 2004 report appeared adequate using then- projected waste disposal volumes, the impact of adding additional waste from overseas waste generators is unclear. While none of the foreign countries we surveyed for our March 2007 report indicated that they have disposal options for all of their LLRW, almost all either had disposal capacity for their lower-activity LLRW or central storage facilities for their higher-activity LLRW, pending the availability of disposal capacity. Specifically, we surveyed 18 foreign countries that previously had or currently have operating nuclear power plants or research reactors. Ten of the 18 countries reported having available disposal capacity for their lower-activity LLRW and 6 other countries have plans to build such facilities. Only 3 countries indicated that they have a disposal option for some higher-activity LLRW. Many countries that lack disposal capacity for LLRW provide centralized storage facilities to relieve waste generators of the need to store LLRW on-site. Specifically, 7 of the 8 countries without disposal facilities for lower-activity LLRW had centralized storage facilities. Eleven of the 15 countries without disposal facilities for at least some higher-activity LLRW provide central storage facilities for this material. Of the 18 countries we surveyed, only Italy indicated that it lacked disposal availability for both lower- and higher-activity LLRW and central storage facilities for this waste. As reported by Italy to the international Nuclear Energy Agency, in 1999, the government began to develop a strategy for managing the liabilities resulting from the country’s past national nuclear activities. The strategy established a new national company to shut down all of Italy’s nuclear power plants and to promptly decommission them. It also created a national agency that would establish and operate a disposal site for radioactive waste. A subsequent government decree in 2001 prompted an acceleration of the process to select a disposal site, with the site to begin operations in 2010. However, the Italian government has more recently reported it has encountered substantial difficulties establishing a disposal site because local governments have rejected potential site locations. In total, Italy will have an estimated 1.1 million cubic feet of lower-activity LLRW that will result from decommissioning its nuclear facilities in addition to the 829,000 cubic feet of this waste already in storage. Our March 2007 report identified several management approaches used in foreign countries that, if adopted in the United States, could improve the management of radioactive waste. These approaches included, among other things, using a comprehensive national radioactive waste inventory of all types of radioactive waste by volume, location, and waste generator; providing disposition options for all types of LLRW or providing central storage options for higher-radioactivity LLRW if disposal options are unavailable; and developing financial assurance requirements for all waste generators to reduce government disposition costs. We also identified another management approach used in most countries—national radioactive waste management plans—that also might provide lessons for managing U.S. radioactive waste. Currently, the United States does not have a national radioactive waste management plan and does not have a single federal agency or other organization responsible for coordinating LLRW stakeholder groups to develop such a plan. Such a plan for the United States could integrate the various radioactive waste management programs at the federal and state levels into a single source document. Our March 2007 report recommended that DOE and NRC evaluate and report to the Congress on the usefulness of adopting the LLRW management approaches used in foreign countries and developing a U.S. radioactive waste management plan. Although both agencies generally agreed with our recommendations, NRC, on behalf of itself and DOE, subsequently rejected two approaches that our March 2007 report discussed. Specifically, NRC believes that the development of national LLRW inventories and a national waste management plan would be of limited use in the United States. In a March 2008 letter to GAO on the actions NRC has taken in response to GAO’s recommendations, NRC stated that the approach used in the United States is fundamentally different from other countries. In particular, NRC argued that, because responsibility for LLRW disposal is placed with the states, the federal government’s role in developing options for managing and/or disposing of LLRW is limited. NRC also expressed concern about the usefulness and significant resources required to develop and implement national inventories and management plans. We continue to believe comprehensive inventories and a national plan would be useful. A comprehensive national radioactive waste inventory would allow LLRW stakeholders to forecast waste volumes and to plan for future disposal capacity requirements. Moreover, a national radioactive waste management plan could assist those interested in radioactive waste management to identify waste quantities and locations, plan for future storage and disposal development, identify research and development opportunities, and assess the need for regulatory or legislative actions. For example, there are no national contingency plans, other than allowing LLRW storage at waste generator sites, to address the impending closure of the Barnwell facility to class B and class C LLRW from noncompact states. The availability of a national plan and periodic reporting on waste conditions might also provide the Congress and the public with a more accessible means for monitoring the management of radioactive waste and provide a mechanism to build greater public trust in the management of these wastes in the United States. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or Members of the Committee may have at this time. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. For further information about this testimony, please contact Gene Aloise at (202) 512- 3841 or aloisee@gao.gov. Major contributors to this statement were Daniel Feehan (Assistant Director), Thomas Laetz, Lesley Rinner, and Carol Herrnstadt Shulman. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Disposal of radioactive material continues to be highly controversial. To address part of the disposal problem, in 1980, Congress made the states responsible for disposing of most low-level radioactive waste (LLRW), and allowed them to form regional compacts and to restrict access to disposal facilities from noncompact states. LLRW is an inevitable by-product of nuclear power generation and includes debris and contaminated soils from the decommissioning and cleanup of nuclear facilities, as well as metal and other material exposed to radioactivity. The Nuclear Regulatory Commission (NRC) ranks LLRW according to hazard exposure--classes A, B, C, and greater-than-class C (GTCC). The states are responsible for the first three classes, and the Department of Energy (DOE) is responsible for GTCC. Three facilities dispose of the nation's LLRW--in Utah, South Carolina, and Washington State. The testimony addresses (1) LLRW management in the United States and (2) LLRW management in other countries. It is substantially based on two GAO reports: a June 2004 report (GAO-04-604) and a March 2007, report (GAO-07-221) that examined these issues. To prepare this testimony, GAO relied on data from the two reports and updated information on current capacity for LLRW and access to disposal facilities. As GAO reported in 2004, existing disposal facilities had adequate capacity for most LLRW and were accessible to waste generators (hereafter referred to as disposal availability) in the short term, but constraints on the disposal of certain types of LLRW warranted concern. Specifically, South Carolina had decided to restrict access to its disposal facility by mid-2008 for class B and C waste--the facility now accepts about 99 percent of this waste generated nationwide--to only waste generators in the three states of its compact. If there are no new disposal options for class B and C wastes after 2008, licensed users of radioactive materials can continue to minimize waste generation, process waste into safer forms, and store waste pending the development of additional disposal options. While NRC prefers that LLRW be disposed of, it allows on-site storage as long as the waste remains safe and secure. In contrast, disposal availability for domestic class A waste is not a problem in the short or longer term. In 2004, GAO reported that the Utah disposal facility--which accepts about 99 percent of this waste generated nationwide--could accept such waste for 20 years or more under its current license based on anticipated class A waste volumes. Since 2005, the volume of class A waste disposed of has declined by two-thirds primarily because DOE completed several large cleanup projects, extending the capacity for an additional 13 years, for a total of 33 years of remaining disposal capacity. However, the June 2004 analysis, and the updated analysis, were based on the generation of LLRW only in the United States and did not consider the impact on domestic disposal capacity of importing foreign countries' LLRW. Ten of the 18 countries surveyed for GAO's March 2007 report have disposal options for class A, B and most of C waste, and 6 other countries have plans to build such facilities. Only 3 countries indicated that they have a disposal option for some class C and GTCC waste; however, almost all countries that do not provide disposal for LLRW have centralized storage facilities for this waste. Only Italy reported that it had no disposal or central storage facilities for its LLRW, although it plans to develop a disposal site for this waste that will include waste from its decommissioned nuclear power plants and from other nuclear processing facilities. Italy initially expected this disposal site to be operational by 2010, but local governments' resistance to the location of this disposal site has delayed this date. The March 2007 report also identified a number of LLRW management approaches used in other countries that may provide lessons to improve the management of U.S. radioactive waste. These approaches include the use of comprehensive national radioactive waste inventory databases and the development of a national radioactive waste management plan. Such a plan would specify a single entity responsible for coordinating radioactive waste management and include strategies to address all types of radioactive waste. GAO had recommended that NRC and DOE evaluate and report to the Congress on the usefulness of these approaches. While the agencies considered these approaches, they expressed particular concerns about the significant resources required to develop and implement a national inventory and management plan for LLRW.

OPM and agencies are continuing to address the problems with the key parts of the hiring process we identified in our May 2003 report. Significant issues and actions being taken include the following. Reforming the classification system. In our May 2003 report on hiring, we noted that many regard the standards and process for defining a job and determining pay in the federal government as a key hiring problem because they are inflexible, outdated, and not applicable to the jobs of today. The process of job classification is important because it helps to categorize jobs or positions according to the kind of work done, the level of difficulty and responsibility, and the qualifications required for the position, and serves as a building block to determine the pay for the position. As you know, defining a job and setting pay in the federal government has generally been based on the standards in the Classification Act of 1949, which sets out the 15 grade levels of the General Schedule system. To aid agencies in dealing with the rigidity of the federal classification system, OPM has revised the classification standards of several job series to make them clearer and more relevant to current job duties and responsibilities. In addition, as part of the effort to create a new personnel system for the Department of Homeland Security (DHS), OPM is working with DHS to create broad pay bands for the department in place of the 15- grade job classification system that is required for much of the federal civil service. Still, OPM told us that its ability to more effectively reform the classification process is limited under current law and that legislation is needed to modify the current restrictive classification process for the majority of federal agencies. As we note in the report we are issuing today, 15 of the 22 CHCO Council members responding to our recent survey reported that either OPM (10 respondents) or Congress (5 respondents) should take the lead on reforming the classification process, rather than the agencies themselves. Improving job announcements and Web postings. We pointed out in our May 2003 report that the lack of clear and appealing content in federal job announcements could hamper or delay the hiring process. Our previous report provided information about how some federal job announcements were lengthy and difficult to read, contained jargon and acronyms, and appeared to be written for people already employed by the government. Clearly, making vacancy announcements more visually appealing, informative, and easy to access and navigate could make them more effective as recruiting tools. To give support to this effort, OPM has continued to move forward on its interagency project to modernize federal job vacancy announcements, including providing guidance to agencies to improve the announcements. OPM continues to collaborate with agencies in implementing Recruitment One-Stop, an electronic government initiative that includes the USAJOBS Web site (www.usajobs.opm.gov) to assist applicants in finding employment with the federal government. As we show in the report we are issuing today, all 22 of the CHCO Council members responding to our recent survey indicated that their agencies had made efforts to improve their job announcements and Web postings. In the narrative responses to our survey, a CHCO Council member representing a major department said, for example, that the USAJOBS Web site is an excellent source for posting vacancies and attracting candidates. Another Council member said that the Recruitment One-Stop initiative was very timely in developing a single automated application for job candidates. Automating hiring processes. Our May 2003 report also emphasized that manual processes for rating and ranking job candidates are time consuming and can delay the hiring process. As we mentioned in our previous report, the use of automation for agency hiring processes has various potential benefits, including eliminating the need for volumes of paper records, allowing fewer individuals to review and process job applications, and reducing the overall time-to-hire. In addition, automated systems typically create records of actions taken so that managers and human capital staff can easily document their decisions related to hiring. To help in these efforts, OPM provides to agencies on a contract or fee-for- service basis an automated hiring system, called USA Staffing, which is a Web-enabled software program that automates the steps of the hiring process. These automated steps would include efforts to recruit candidates, use of automated tools to assess candidates, automatic referral of high-quality candidates to selecting officials, and electronic notification of applicants on their status in the hiring process. According to OPM, over 40 federal organizations have contracted with OPM to use USA Staffing. OPM told us that it has developed and will soon implement a new Web- based version of USA Staffing that could further link and automate agency hiring processes. As we mention in the report we are issuing today, 21 of the 22 CHCO Council members responding to our recent survey reported that their agencies had made efforts to automate significant parts of their hiring processes. Improving candidate assessment tools. We concluded in our May 2003 report that key candidate assessment tools used in the federal hiring process can be ineffective. Our previous report noted that using the right assessment tool, or combination of tools, can assist the agency in predicting the relative success of each applicant on the job and selecting the relatively best person for the job. These candidate assessment tools can include written and performance tests, manual and automated techniques to review each applicant’s training and experience, as well as interviewing approaches and reference checks. In our previous report, we noted some of the challenges of assessment tools and special hiring programs used for occupations covered by the Luevano consent decree. Although OPM officials said they monitor the use of assessment tools related to positions covered under the Luevano consent decree, they have not reevaluated these assessment tools. OPM officials told us, however, that they have provided assessment tools or helped develop new assessment tools related to various occupations for several agencies on a fee-for-service basis. Although OPM officials acknowledged that candidate assessment tools in general need to be reviewed, they also told us that it is each agency’s responsibility to determine what tools it needs to assess job candidates. The OPM officials also said that if agencies do not want to develop their own assessment tools, then they could request that OPM help develop such tools under the reimbursable service program that OPM operates. As we state in the report we are issuing today, 21 of the 22 CHCO Council members responding to our recent survey indicated that their agencies had made efforts to improve their hiring assessment tools. Although we agree that OPM has provided assistance to agencies in improving their candidate assessment tools and has collected information on agencies’ use of special hiring authorities, we believe that major challenges remain in this area. OPM can take further action to address our prior recommendations related to assessment tools. OPM could, for example, actively work to link up agencies having similar occupations so that they could potentially form consortia to develop more reliable and valid tools to assess their job candidates. Despite agency officials’ past calls for hiring reform, agencies appear to be making limited use of category rating and direct-hire authority, two new hiring flexibilities created by Congress in November 2002 and implemented by OPM in June of last year. Data on the actual use of these two new flexibilities are not readily available, but most CHCO Council members responding to our recent survey indicated that their agencies are making little or no use of either flexibility (see fig. 1). OPM officials also confirmed with us that based on their contacts and communications with agencies, it appeared that the agencies were making limited use of the new hiring flexibilities. The limited use of category rating is somewhat unexpected given the views of human resources directors we interviewed 2 years ago. As noted in our May 2003 report, many agency human resources directors indicated that numerical rating and the rule of three were key obstacles in the hiring process. Category rating was authorized to address those concerns. The report we are issuing today also includes information about barriers that the CHCO Council members believed have prevented or hindered their agencies from using or making greater use of category rating and direct hire. Indeed, all but one of the 22 CHCO Council members responding to our recent survey identified at least one barrier to using the new hiring flexibilities. Frequently cited barriers included the lack of OPM guidance for using the flexibilities, the lack of agency policies and procedures for using the flexibilities, the lack of flexibility in OPM rules and regulations, and concern about possible inconsistencies in the implementation of the flexibilities within the department or agency. In a separate report we issued in May 2003 on the use of human capital flexibilities, we recommended that OPM work with and through the new CHCO Council to more thoroughly research, compile, and analyze information on the effective and innovative use of human capital flexibilities. We noted that sharing information about when, where, and how the broad range of personnel flexibilities is being used, and should be used, could help agencies meet their human capital management challenges. As we recently testified, OPM and agencies need to continue to work together to improve the hiring process, and the CHCO Council should be a key vehicle for this needed collaboration. To accomplish this effort, agencies need to provide OPM with timely and comprehensive information about their experiences in using various approaches and flexibilities to improve their hiring processes. OPM—working through the CHCO Council—can, in turn, help by serving as a facilitator in the collection and exchange of information about agencies’ effective practices and successful approaches to improved hiring. Such additional collaboration between OPM and agencies could go a long way to helping the government as a whole and individual agencies in improving the processes for quickly hiring highly qualified candidates to fill important federal jobs. In conclusion, the federal government is now facing one of the most transformational changes to the civil service in half a century, which is reflected in the new personnel systems for DHS and the Department of Defense and in new hiring flexibilities provided to all agencies. Today’s challenge is to define the appropriate roles and day-to-day working relationships for OPM and individual agencies as they collaborate on developing innovative and more effective hiring systems. Moreover, for this transformation to be successful and enduring, human capital expertise within the agencies must be up to the challenge. Madam Chairwoman and Mr. Davis, this completes my statement. I would be pleased to respond to any questions that you might have. For further information on this testimony, please contact J. Christopher Mihm, Managing Director, Strategic Issues, (202) 512-6806 or at mihmj@gao.gov. Individuals making key contributions to this testimony include K. Scott Derrick, Karin Fangman, Stephanie M. Herrold, Trina Lewis, John Ripper, Edward Stephenson, and Monica L. Wolford. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The executive branch hired nearly 95,000 new employees during fiscal year 2003. Improving the federal hiring process is critical given the increasing number of new hires expected in the next few years. In May 2003, GAO issued a report highlighting several key problems in the federal hiring process. That report concluded that the process needed improvement and included several recommendations to address the problems. Today, GAO is releasing a followup report requested by the subcommittee that discusses (1) the status of recent efforts to help improve the federal hiring process and (2) the extent to which federal agencies are using two new hiring flexibilities--category rating and direct-hire authority. Category rating permits an agency manager to select any job candidate placed in a best-qualified category. Direct-hire authority allows an agency to appoint individuals to positions without adherence to certain competitive examination requirements when there is a severe shortage of qualified candidates or a critical hiring need. Congress, the Office of Personnel Management (OPM), and agencies have all taken steps to improve the federal hiring process. In particular, Congress has provided agencies with additional hiring flexibilities, OPM has taken significant steps to modernize job vacancy announcements and develop the government's recruiting Web site, and most agencies are continuing to automate parts of their hiring processes. Nonetheless, problems remain with a job classification process and standards that many view as antiquated, and there is a need for improved tools to assess the qualifications of job candidates. Specifically, the report being released today discusses significant issues and actions being taken to (1) reform the classification system, (2) improve job announcements and Web postings, (3) automate hiring processes, and (4) improve candidate assessment tools. In addition, agencies appear to be making limited use of the two new hiring flexibilities contained in the Homeland Security Act of 2002--category rating and direct-hire authority--that could help agencies in expediting and controlling their hiring processes. GAO surveyed members of the interagency Chief Human Capital Officers Council who reported several barriers to greater use of these new flexibilities. Frequently cited barriers included (1) the lack of OPM guidance for using the flexibilities, (2) the lack of agency policies and procedures for using the flexibilities, (3) the lack of flexibility in OPM rules and regulations, and (4) concern about possible inconsistencies in the implementation of the flexibilities within the department or agency. The federal government is now facing one of the most transformational changes to the civil service in half a century, which is reflected in the new personnel systems for Department of Homeland Security and the Department of Defense and in new hiring flexibilities provided to all agencies. Today's challenge is to define the appropriate roles and day-to-day working relationships for OPM and individual agencies as they collaborate on developing innovative and more effective hiring systems. Moreover, human capital expertise within the agencies must be up to the challenge for this transformation to be successful and enduring.

The use of computer technology in schools has grown dramatically in the past several years. Surveys conducted by one marketing research firmestimated that in 1983 schools had 1 computer for every 125 students; in 1997, the ratio had increased to 1 computer for every 9 students. Meanwhile, many education technology experts believe that current levels of school technology do not give students enough access to realize technology’s full potential. For example, schools should have a ratio of four to five students for every computer or five students for every multimedia computer, many studies suggest. In addition, concern has been expressed that aging school computers may not be able to run newer computer programs, use multimedia technology, and access the Internet. A computer-based education technology program has many components, as figure 1 shows, which range from the computer hardware and software to the maintenance and technical support needed to keep the system running. Although technology programs may define the components differently, they generally cover the same combination of equipment and support elements. Computer-based technology can be used to augment learning in a number of ways. These include drill-and-practice programs to improve basic skills; programs providing students with the tools to write and produce multimedia projects that combine text, sound, graphics, and video; programs providing access to information resources, such as on the Internet; and networks that support collaborative and active learning. Research on school technology has not, however, provided clear and comprehensive conclusions about its impact on student achievement. Although some studies have shown measurable improvements in some areas, less research data exist on the impact of the more complex uses of technology. Our work focused on funding for school technology. We did not evaluate district goals or accomplishments or assess the value of technology in education. Each of the districts we visited used a combination of funding sources to support technology in its schools (see table 1). At the local level, districts allocated funds from their district operating budgets, levied special taxes, or both. Districts also obtained funds from federal and state programs specifically designated to support school technology or from federal and state programs that could be used for this and other purposes. Finally, districts obtained private grants and solicited contributions from businesses. Although some individual schools in the districts we visited raised some funds, obtaining technology funding was more a district-level function than a school-level function, according to our study. Although districts tapped many sources, nearly all of them obtained the majority of their funding from one main source. The source, however, varied by district. For example, in Seattle, a 1991 local capital levy has provided the majority of the district’s education technology funding to date. In Gahanna, the district operating budget has provided the majority of technology funding. All five districts chose to allocate funds for technology from their operating budgets. The portions allocated ranged widely from 16 to 77 percent of their total technology funding. Two districts—Seattle and Roswell—also raised significant portions of their technology funding using local bonds or special levies. Manchester and Seattle won highly competitive 5-year Technology Innovation Challenge Grants for $2.8 million and $7 million, respectively. The grant provided the major source of funding for Manchester’s technology program—about 66 percent of the funding. The $1.5 million in grant funding Seattle has received so far accounted for about 4 percent of the district’s technology funding. All five districts reported using federal and state program funding that was not specifically designated for technology but could be used for this purpose if it fulfilled program goals. For example, four districts reported using federal title I funds for technology. In Manchester, a schoolwide program at a title I elementary school we visited had funded many of its 27 computers as part of its title I program. Three districts used state program funds, such as textbook or instructional materials funds, to support their technology programs. In Davidson County, for example, the district has directed about $2 million in such funds, including those for exceptional and at-risk children as well as vocational education, to education technology. All districts received assistance, such as grants and monetary and in-kind donations, from businesses, foundations, and individuals. Such funding constituted about 3 percent or less of their technology funding. It is important to note, however, that our selection criteria excluded districts that had benefited from extraordinary assistance such as those receiving the majority of their funding from a company or individual. Officials we spoke with attributed the limited business contributions in their districts to a variety of reasons, including businesses not fully understanding the extent of the schools’ needs and businesses feeling overburdened by the large number of requests from the community for assistance. Some said their district simply had few businesses from which to solicit help. Nonetheless, all five districts noted the importance of business’ contribution and were cultivating their ties with business. teacher organization activities and other school fund-raisers. Such supplemental funding amounted to generally less than $7,000 annually but did range as high as $84,000 over 4 years at one school. Staff at two schools reported that teachers and other staff used their personal funds to support technology in amounts ranging from $100 to over $1,000. Officials in the districts we visited identified a variety of barriers to obtaining technology funding. Four types of barriers were common to most districts and considered by some to be especially significant. (See table 2.) Officials in all of the districts we visited reported that district-level funding was difficult to obtain for technology because it was just one of many important needs that competed for limited district resources. For example, a Gahanna official reported that his district’s student population had grown, and the district needed to hire more teachers. A Seattle official reported that his district had $275 million in deferred maintenance needs. Some districts had mandates to meet certain needs before making funding available for other expenditures like technology. Manchester officials noted, for example, that required special education spending constituted 26 percent of their 1997 district operating budget, a figure expected to rise to 27.5 percent in fiscal year 1998. Officials from all districts said that resistance to higher taxes affected their ability to increase district operating revenue to help meet their technology goals. For example, in Davidson County, the local property tax rate is among the lowest in the state, and officials reported that many county residents were attracted to the area because of the tax rates. In addition, two districts—Roswell and Seattle—did not have the ability to increase the local portion of their operating budgets because of state school finance systems that—to improve equity—limited the amount of funds districts could raise locally. Officials in three districts reported that the antitax sentiment also affected their ability to pass special technology levies and bond measures. Although all districts identified an environment of tax resistance in their communities, most said they believed the community generally supported education. Many officials reported that they did not have the time to search for technology funding in addition to performing their other job responsibilities. They said that they need considerable time to develop funding proposals or apply for grants. For example, one technology director with previous grant-writing experience said she would need an uninterrupted month to submit a good application for a Department of Commerce telecommunications infrastructure grant. As a result, she did not apply for this grant. The technology director in Manchester said that when the district applied for a Technology Innovation Challenge Grant, two district staff had to drop all other duties to complete the application within the 4-week time frame available. corporations and foundations typically like to give funds to schools where they can make a dramatic difference. Districts have employed general strategies to overcome funding barriers rather than address specific barriers. The strategies have involved two main approaches—efforts to inform decisionmakers about the importance of and need for technology and leadership efforts to secure support for technology initiatives. In their information efforts, district officials have addressed a broad range of audiences about the importance of and need for technology. These audiences have included school board members, city council representatives, service group members, parents, community taxpayers, and state officials. These presentations have included technology demonstrations, parent information nights, lobbying efforts with state officials, and grassroots efforts to encourage voter participation in levy or bond elections. Roswell, for example, set up a model technology school and used it to demonstrate the use of technology in school classrooms. In the districts we visited, both district officials and the business community provided leadership to support school technology. In all districts, district technology directors played a central leadership role in envisioning, funding, and implementing their respective technology programs over multiyear periods and continued to be consulted for expertise and guidance. In some districts, the superintendent also assumed a role in garnering support and funding for the technology program. Beyond the district office, business community members sometimes assumed leadership roles to support technology by entering into partnerships with the districts to help in technology development efforts as well as in obtaining funding. All five districts we visited had developed such partnerships with local businesses. In Roswell and Seattle, education foundations comprising business community leaders had helped their school districts’ efforts to plan and implement technology, providing both leadership and funding for technology. Other districts we visited continued to cultivate their ties with the business community through organizations such as a business advisory council and a community consortium. Nearly all districts reported maintenance, technical support, and training— components often dependent on staff—as more difficult to fund than other components. Officials we interviewed cited several limitations associated with funding sources that affected their use for staff costs. First, some sources simply could not be used to pay for staff. Officials in Roswell and Seattle noted that special levy and bond monies, their main sources of technology funds, could not be used to support staff because the funds were restricted to capital expenditures. Second, some funding sources do not suit the ongoing nature of staff costs. Officials noted, for example, that grants and other sources provided for a limited time or that fluctuate from year to year are not suited to supporting staff. Most districts funded technology staff primarily from district operating budgets. Several officials noted that competing needs and the limited size of district budgets make it difficult to increase technology staff positions. Officials in all five districts reported having fewer staff than needed. Some technology directors and trainers reported performing maintenance or technical support at the expense of their other duties because of a lack of sufficient support staff. One result was lengthy periods—up to 2 weeks in some cases—when computers and other equipment were unavailable. Several officials observed that this can be frustrating to teachers and discourage them from using the equipment. Teacher training was also affected by limited funding for staff costs, according to officials. In one district, for example, an official said that the number of district trainers was insufficient to provide the desired in-depth training to all teachers. Most district officials expressed a desire for more technology training capability, noting that teacher training promoted the most effective use of the equipment. A number of districts had developed mitigating approaches to a lack of technology support staff. These included purchasing extended warranties on new equipment, training students to provide technical support in their schools, and designating teachers to help with technical support and training. and (2) periodic costs of upgrading and replacing hardware, software, and infrastructure to sustain programs. Most districts planned to continue funding ongoing maintenance, technical support, training, and telecommunications costs primarily from their operating budgets and to sustain at least current levels of support. Nonetheless, most districts believed that current levels of maintenance and technical support were not adequate and that demand for staff would likely grow. Some officials talked about hiring staff in small increments but were unsure to what extent future district budgets would support this growing need. The periodic costs to upgrade and replace hardware, software, or infrastructure can be substantial, and most districts faced uncertainty in continuing to fund them with current sources. For example, Davidson County and Gahanna funded significant portions of their hardware with state technology funding. However, officials told us that in the past, the level of state technology funding had been significantly reduced due to the changing priorities of their state legislatures. In Seattle, special levies are the district’s primary funding source, but passing these initiatives is unpredictable. Officials in all districts underscored the need for stable funding sources and for technology to be considered a basic education expenditure rather than an added expense. They also suggested ways to accomplish this. Some proposed including a line item in the district operating budget to demonstrate district commitment to technology as well as provide a more stable funding source. One official said that technology is increasingly considered part of basic education and as such should be included in the state’s formula funding. Without such funding, he said districts would be divided into those that could “sell” technology to voters and those that could not. technology supporters in the districts we studied not only had to garner support at the start for the district’s technology, but they also had to continue making that case year after year. To develop support for technology, leaders in these five school districts used a broad informational approach to educate the community, and they formed local partnerships with business. Each district has developed some ties with business. Nonetheless, funding from private sources, including business, for each district, constituted no more than about 3 percent of what the district has spent on its technology program. Other districts like these may need to continue depending mainly on special local bonds and levies, state assistance, and federal grants for initially buying and replacing equipment and on their operating budgets for other technology needs. Lack of staff for seeking and applying for funding and the difficulty of funding technology support staff were major concerns of officials in all the districts we studied. Too few staff to maintain equipment and support technology users in the schools could lead to extensive computer downtime, teacher frustration, and, ultimately, to reduced use of a significant technology investment. The technology program in each of the five districts we visited had not yet secured a clearly defined and relatively stable funding source, such as a line item in the operating budget or a part of the state’s education funding formula. As a result, district officials for the foreseeable future will continue trying to piece together funding from various sources to maintain their technology programs and keep them viable. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions you or members of the Task Force may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. 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GAO discussed how school districts obtain funds for the acquisition of education technology, focusing on: (1) sources of funding school districts have used to develop and fund their technology programs; (2) barriers districts have faced in funding the technology goals they set, and how they attempted to deal with these barriers; (3) components of districts' technology programs that have been the most difficult to fund, and what the consequences have been; and (4) districts' plans to deal with the ongoing costs of the technology they have acquired. GAO noted that: (1) the five districts it studied used a variety of ways to fund their technology programs; (2) four types of barriers seemed to be common to several districts: (a) technology was just one of a number of competing needs and priorities, such as upkeep of school buildings; (b) local community resistance to higher taxes limited districts' ability to raise more revenue; (c) officials said they did not have enough staff for fund-raising efforts and therefore had difficulty obtaining grants and funding from other sources such as business; and (d) some funding sources had restrictive conditions or requirements that made funding difficult to obtain; (3) to overcome these barriers, officials reported that their districts used a variety of methods to educate and inform the school board and the community about the value of technology; (4) these ranged from presentations to parent groups to the establishment of a model program at one school to showcase the value of technology; (5) the parts of the technology program that were hardest to fund, according to those GAO interviewed, were components such as maintenance, training, and technical support, which depend heavily on staff positions; (6) for example, in two locations special levy and bond funding could be used only for capital expenditures--not for staff; (7) in several districts GAO visited, officials said that staffing shortfalls in maintenance and technical support had resulted in large workloads for existing staff and in maintenance backlogs; (8) most said this resulted in reduced computer use because computers were out of service; and (9) as these districts looked to the future to support the ongoing and periodic costs of their technology programs, they typically planned to continue using a variety of funding sources despite uncertainties associated with many of these sources.

The Coast Guard is a multimission, maritime military service within DHS. The Coast Guard’s responsibilities fall into two general categories—those related to homeland security missions, such as port security and vessel escorts, and those related to non-homeland security missions, such as search and rescue and polar ice operations. To carry out these responsibilities, the Coast Guard operates a number of vessels and aircraft and, through its Deepwater Program, is currently modernizing or replacing those assets. At the start of Deepwater in the late 1990s, the Coast Guard chose to use a system of systems acquisition strategy that was intended to replace the assets with a single, integrated package of aircraft, vessels, and communications systems. As the systems integrator, ICGS was responsible for designing, constructing, deploying, supporting, and integrating the assets. The decision to use a systems integrator for the Deepwater Program was driven in part because of the Coast Guard’s lack of expertise in managing and executing an acquisition of this magnitude. Under this approach, the Coast Guard provided the contractor with broad, overall performance specifications—such as the ability to interdict illegal immigrants—and ICGS determined the specifications for the Deepwater assets. According to Coast Guard officials, the ICGS proposal was submitted and priced as a package; that is, the Coast Guard bought the entire solution and could not reject any individual component. Deepwater assets are in various stages of the acquisition process. Some, such as the NSC and Maritime Patrol Aircraft, are in production. Others, such as the Fast Response Cutter, are in design, and still others, such as the Offshore Patrol Cutter, are in the early stages of requirements definition. Since the Commandant’s April 2007 announcement that the Coast Guard was taking over the lead role in systems integration from ICGS, the Coast Guard has undertaken several initiatives that have increased accountability for Deepwater outcomes within the Coast Guard and to DHS. The Coast Guard’s Blueprint for Acquisition Reform sets forth a number of objectives and specific tasks with the intent of improving acquisition processes and results. Its overarching goal is to enhance the Coast Guard’s mission execution through improved contracting and acquisition approaches. One key effort in this regard was the July 2007 consolidation of the Coast Guard’s acquisition responsibilities—including the Deepwater Program—into a single acquisition directorate. Previously, Deepwater assets were managed independently of other Coast Guard acquisitions within an insulated structure. The Coast Guard has also vested its government project managers with management and oversight responsibilities formerly held by ICGS. The Coast Guard is also now managing Deepwater under an asset-based approach, rather than as an overall system-of-systems as initially envisioned. This approach has resulted in increased government control and visibility. For example, cost and schedule information is now captured at the individual asset level, resulting in the ability to track and report cost breaches for assets. Under the prior structure, a cost breach was to be tracked at the overall Deepwater Program level, and the threshold was so high that a breach would have been triggered only by a catastrophic event. To manage Deepwater acquisitions at the asset level, the Coast Guard has begun to follow a disciplined project management process using the framework set forth in its Major Systems Acquisition Manual. This process requires documentation and approval of program activities at key points in a program’s life cycle. The process begins with identification of deficiencies in Coast Guard capabilities and then proceeds through a series of structured phases and decision points to identify requirements for performance, develop and select candidate systems that meet those requirements, demonstrate the feasibility of selected systems, and produce a functional capability. Previously, the Coast Guard authorized the Deepwater Program to deviate from the structured acquisition process, stating that the requirements of the process were not appropriate for the Deepwater system-of-systems approach. Instead, Deepwater Program reviews were required on a schedule-driven—as opposed to the current event-driven—basis. Further, leadership at DHS is now formally involved in reviewing and approving key acquisition decisions for Deepwater assets. We reported in June 2008 that DHS approval of Deepwater acquisition decisions as part of its investment review process was not required, as the department had deferred decisions on specific assets to the Coast Guard in 2003. We recommended that the Secretary of DHS direct the Under Secretary for Management to rescind the delegation of Deepwater acquisition decision authority. In September 2008, the Under Secretary took this step, so that Deepwater acquisitions are now subject to the department’s investment review process, which calls for executive decision making at key points in an investment’s life cycle. We also reported this past fall, however, that DHS had not effectively implemented or adhered to this investment review process; consequently, the department had not provided the oversight needed to identify and address cost, schedule, and performance problems in its major investments. Without the appropriate reviews, DHS loses the opportunity to identify and address cost, schedule, and performance problems and, thereby, minimize program risk. We reported that 14 of the department’s investments that lacked appropriate review experienced cost growth, schedule delays, and underperformance—some of which were substantial. Other programs within DHS have also experienced cost growth and schedule delays. For example, we reported in July 2008 that the Coast Guard’s Rescue 21 system was projected to experience cost increases of 184 percent and schedule delays of 5 years after rebaselining. DHS issued a new interim management directive on November 7, 2008, that addresses many of our findings and recommendations on the department’s major investments. If implemented as intended, the more disciplined acquisition and investment review process outlined in the directive will help ensure that the department’s largest acquisitions, including Deepwater, are effectively overseen and managed. While the decision to follow the Major Systems Acquisition Manual process for Deepwater assets is promising, the consequences of not following this acquisition approach in the past—when the contractor managed the overall acquisition—are now apparent for assets already in production, such as the NSC, and are likely to pose continued problems, such as increased costs. Because ICGS had determined the overall Deepwater solution, the Coast Guard had not ensured traceability from identification of mission needs to performance specifications for the Deepwater assets. In some cases it is already known that the ICGS solution does not meet Coast Guard needs, for example: The Coast Guard accepted the ICGS-proposed performance specifications for the long-range interceptor, a small boat intended to be launched from larger cutters such as the NSC, with no assurance that the boat it was buying was what was needed to accomplish its missions. Ultimately, after a number of design changes and a cost increase from $744,621 to almost $3 million, the Coast Guard began to define for itself the capabilities it needed and has decided not to buy any more of the ICGS boats. ICGS had initially proposed a fleet of 58 fast response cutters, subsequently termed the Fast Response Cutter-A (FRC-A), which were to be constructed of composite materials (as opposed to steel, for example). However, the Coast Guard suspended design work on the FRC-A in February 2006 to assess and mitigate technical risks. Ultimately, because of high risk and uncertain cost savings, the Coast Guard decided not to pursue the acquisition, a decision based largely on a third-party analysis that found the composite technology was unlikely to meet the Coast Guard’s desired 35-year service life. After obligating $35 million to ICGS for the FRC-A, the Coast Guard pursued a competitively awarded fast response cutter based on a modified commercially available patrol boat. That contract was awarded in September 2008. Although the shift to individual acquisitions is intended to provide the Coast Guard with more visibility and control, key aspects still require a system-level approach. These aspects include an integrated C4ISR system—needed to provide critical information to field commanders and facilitate interoperability with the Department of Defense and DHS—and decisions on production quantities of each Deepwater asset the Coast Guard requires to achieve its missions. The Coast Guard is not fully positioned to manage these aspects under its new acquisition approach but is engaged in efforts to do so. C4ISR is a key aspect of the Coast Guard’s ability to meet its missions. How the Coast Guard structures C4ISR is fundamental to the success of the Deepwater Program because C4ISR encompasses the connections among surface, aircraft, and shore-based assets and the means by which information is communicated through them. C4ISR is intended to provide operationally relevant information to Coast Guard field commanders to allow the efficient and effective execution of their missions. However, an acquisition strategy for C4ISR is still in development. Officials stated that the Coast Guard is revisiting the C4ISR incremental acquisition approach proposed by ICGS and analyzing that approach’s requirements and architecture. In the meantime, the Coast Guard is continuing to acquire C4ISR through ICGS. As the Coast Guard transitions from the ICGS-based system-of-systems acquisition strategy to an asset-based approach, it will need to maintain a strategic outlook to determine how many of the various Deepwater assets to procure to meet Coast Guard needs. When deciding how many of a specific vessel or aircraft to procure, it is important to consider not only the capabilities of that asset, but how it can complement or duplicate the capabilities of the other assets with which it is intended to operate. To that end, the Coast Guard is modeling the planned capabilities of Deepwater assets, as well as the capabilities and operations of existing assets, against the requirements for Coast Guard missions. The intent of this modeling is to test each planned asset to ensure that its capabilities fill stated deficiencies in the Coast Guard’s force structure and to inform how many of a particular asset are needed. However, the analysis based on the modeling is not expected to be completed until the summer of 2009. In the meantime, Coast Guard continues to plan for asset acquisitions in numbers very similar to those determined by ICGS, such as 8 NSCs. Like many federal agencies that acquire major systems, the Coast Guard faces challenges in recruiting and retaining a sufficient government acquisition workforce. In fact, one of the reasons the Coast Guard originally contracted with ICGS as a systems integrator was the recognition that the Coast Guard lacked the experience and depth in its workforce to manage the acquisition itself. The Coast Guard’s 2008 acquisition human capital strategic plan sets forth a number of workforce challenges that pose the greatest threats to acquisition success, including a shortage of civilian acquisition staff , its military personnel rotation policy, and the lack of an acquisition career path for its military personnel. The Coast Guard has taken a number of steps to hire more acquisition professionals, including the increased use of recruitment incentives and relocation bonuses, utilizing direct hire authority, and rehiring government annuitants. The Coast Guard also recognizes the impact of military personnel rotation on its ability to retain people in key positions. Its policy of 3-year rotations of military personnel among units, including to and from the acquisition directorate, limits continuity in key project roles and can have a serious impact on acquisition expertise. While the Coast Guard concedes that it does not have the personnel required to form a dedicated acquisition career field for military personnel, such as that found in the Navy, it is seeking to improve the base of acquisition knowledge throughout the Coast Guard by exposing more officers to acquisition as they follow their regular rotations. In the meantime, the lack of a sufficient government acquisition workforce means that the Coast Guard is relying on contractors to supplement government staff, often in key positions such as cost estimators, contract specialists, and program management support. While support contractors can provide a variety of essential services, when they are performing certain activities that closely support inherently governmental functions their use must be carefully overseen to ensure that they do not perform inherently governmental roles. Conflicts of interest, improper use of personal services contracts, and increased costs are also potential concerns of reliance on contractors. In response to significant problems in achieving its intended outcomes under the Deepwater Program, the Coast Guard leadership has made a major change in course in its management and oversight by re-organizing its acquisition directorate, moving away from the use of a contractor as the systems integrator, and putting in place a structured, more disciplined acquisition approach for Deepwater assets. While the initiatives the Coast Guard has underway have begun to have a positive impact, the extent and duration of this impact depend on positive decisions that continue to increase and improve government management and oversight. Mr. Chairman, this concludes my prepared statement. I will be pleased to answer any questions you or members of the subcommittee may have at this time. For further information about this testimony, please contact John P. Hutton, Director, at 202-512-4841 or huttonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

GAO has a large body of work examining government agencies' approaches to managing their large acquisition projects. GAO has noted that without sufficient knowledge about system requirements, technology, and design maturity, programs are subject to cost overruns, schedule delays, and performance that does not meet expectations. The Deepwater Program, intended to replace or modernize 15 major classes of Coast Guard assets, accounts for almost 60 percent of the Coast Guard's fiscal year 2009 appropriation for acquisition, construction and improvements. GAO has reported over the years on this program, which has experienced serious performance and management problems such as cost breaches, schedule slips, and assets designed and delivered with significant defects. To carry out the Deepwater acquisition, the Coast Guard contracted with Integrated Coast Guard Systems (ICGS) as a systems integrator. In April 2007, the Commandant acknowledged that the Coast Guard had relied too heavily on contractors to do the work of government and announced that the Coast Guard was taking over the lead role in systems integration from ICGS. This testimony reflects our most recent issued work on Deepwater, specifically our June 2008 report, Coast Guard: Change in Course Improves Deepwater Management and Oversight, but Outcome Still Uncertain, GAO-08-745 . Over the past two years, the Coast Guard has reoriented its acquisition function to position itself to execute systems integration and program management responsibilities formerly carried out by ICGS. The acquisition directorate has been consolidated to oversee all Coast Guard acquisitions, including the Deepwater Program, and Coast Guard project managers have been vested with management and oversight responsibilities formerly held by ICGS. Another key change has been to manage the procurement of Deepwater assets on a more disciplined, asset-by-asset approach rather than as an overall system of systems, where visibility into requirements and capabilities was limited. For example, cost and schedule information is now captured at the individual asset level, resulting in the ability to track and report breaches for assets. Further, to manage Deepwater acquisitions at the asset level, the Coast Guard has begun to follow a disciplined project management process that requires documentation and approval of program activities at key points in a program's life cycle. These process changes, coupled with strong leadership to help ensure the processes are followed in practice, have helped to improve Deepwater management and oversight. However, the Coast Guard still faces many hurdles going forward and the acquisition outcome remains uncertain. The consequences of not following a disciplined acquisition approach for Deepwater acquisitions and of relying on the contractor to define Coast Guard requirements are clear now that assets, such as the National Security Cutter, have been paid for and delivered without the Coast Guard's having determined whether the assets' planned capabilities would meet mission needs. While the asset-based approach is beneficial, certain cross-cutting aspects of Deepwater--such as command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) and the overall numbers of each asset needed to meet requirements--still require a system-level approach. The Coast Guard is not fully positioned to manage these aspects. One of the reasons the Coast Guard originally contracted with ICGS as the systems integrator was the recognition that the Coast Guard lacked the experience and depth in workforce to manage the acquisition itself. The Coast Guard has faced challenges in building an adequate government acquisition workforce and, like many other federal agencies, is relying on support contractors--some in key positions such as cost estimating and contract support. GAO has pointed out the potential concerns of reliance on contractors who closely support inherently governmental functions.

The Office of Acquisition and Materiel Management is the principal office within VA headquarters responsible for supporting the agency’s programs. The OA&MM includes an Office of Acquisitions that, among other things, provides acquisition planning and support, helps develop statements of work, offers expertise in the areas of information technology and software acquisition, develops and implements acquisition policy, conducts business reviews, and issues warrants for contracting personnel. As of June 2005, the Office of Acquisitions was managing contracts valued at over $18 billion, including option years. In recent years, reports have cited inadequacies in the contracting practices at VA’s Office of Acquisitions and also have identified actions needed to improve them. In fiscal year 2001, the VA IG issued a report that expressed significant concerns about the effectiveness of VA’s acquisition system. As a result, the Secretary of Veterans Affairs established, in June 2001, a Procurement Reform Task Force to review VA’s procurement system. The task force’s May 2002 report set five major goals that it believed would improve VA’s acquisition system: (1) leverage purchasing power, (2) standardize commodities, (3) obtain and improve comprehensive information, (4) improve organizational effectiveness, and (5) ensure a sufficient and talented workforce. Issues related to organizational and workforce effectiveness were at the center of the difficulties VA experienced implementing its Core Financial and Logistics System (CoreFLS). The VA IG and an independent consultant issued reports on CoreFLS in August 2004 and June 2004, respectively, and both noted that VA did not do an adequate job of managing and monitoring the CoreFLS contract and did not protect the interests of the government. Ultimately, the contract was canceled after VA had spent nearly $250 million over 5 years. In response to deficiencies noted in the CoreFLS reports, VA sought help to improve the quality, effectiveness, and efficiency of its acquisition function by requesting that NAVSUP perform an independent assessment of the Acquisition Operations Service (AOS). NAVSUP looked at three elements of the contracting process: management of the contracting function; contract planning and related functions; and special interest items such as information technology procurements, use of the federal supply schedule, and postaward contract management. In a September 2004 report, NAVSUP identified problems in all three elements. While VA agrees with the NAVSUP report’s recommendations, limited progress has been made in implementing the seven key recommendations of the report. VA officials indicate that factors contributing to this limited progress include the absence of key personnel, a high turnover rate, and a heavy contracting workload. We found that VA has neither established schedules for completing action on the recommendations nor established a method to measure its progress. Until VA establishes well-defined procedures for completing action on the NAVSUP recommendations, the benefits of this study may not be fully realized. The status of the seven key recommendations we identified is summarized in Table 1: Action taken by VA on the seven key recommendations in the NAVSUP report has varied from no action, to initial steps, to more advanced efforts in specific areas. Long-term improvement plan. NAVSUP recommended that AOS develop a long-term approach to address improvements needed in key areas. VA acknowledges that establishing a long-term improvement plan is necessary to maintain its focus on the actions that will result in desired organizational and cultural changes. During the course of our review, however, we found that no action has been taken to develop a long-term improvement plan with established milestones for specific actions. Adequate management metrics. NAVSUP recommended that AOS develop metrics to effectively monitor VA’s agencywide acquisition and procurement processes, resource needs, and employee productivity because it found it that AOS was not receiving information needed to oversee the contracting function. VA officials agree that they need to have the ability to continuously and actively monitor acquisitions from the pre- award to contract closeout stages to identify problem areas and trends. VA officials acknowledge that, without adequate metrics, its managers are unable to oversee operations and make long-term decisions about their organizations; customers cannot review the status of their requirements without direct contact with contracting officers; and contracting officers are hampered in their ability to view their current workload or quickly assess deadlines. During our review, VA officials stated that they intend to use a balanced scorecard approach for organizational metrics in the future. However, no steps had been taken to establish specific metrics at the time we completed our review. Strategic planning. NAVSUP recommended that AOS develop a supplement to the OA&MM strategic plan that includes operational-level goals to provide employees with a better understanding of their roles and how they contribute to the agency’s strategic goals, objectives, and performance measures. VA officials indicated that progress on the strategic plan had been delayed because it will rely heavily on management metrics that will be identified as part of the effort to develop a balanced scorecard. With the right metrics in place, VA officials believe they will be in a much better position to supplement the strategic plan. VA had not revised the strategic plan by the time we finished our review. Process to review contract files at key acquisition milestones. NAVSUP recommended that AOS establish a contract review board to improve management of the agency’s contract function. NAVSUP believed that a contracting review board composed of senior contracting officers would provide a mechanism to effectively review contracting actions at key acquisition milestones and provide needed overall management. To enhance these reviews, VA has prepared draft standard operating procedures on how contract files should be organized and documented. Final approval is pending. VA officials indicated, however, that no decisions have been made about how or when they will institute a contract review board as part of the agency’s procurement policies and processes. Postaward contract management. NAVSUP recommended that the AOS contracting officers pay more attention to postaward contract management by developing a contract administration plan, participating in postaward reviews, conducting contracting officer technical representative reviews, and improving postaward file documentation. We found that VA has taken some action to address postaward contract management. For example, AOS is training a majority of its contracting specialists on the electronic contract management system. VA officials indicated that the electronic contract management system will help improve its postaward contract management capability. The electronic contract management system is a pilot effort that VA expects to be operational in early 2006. Also, final approval for a draft standard operating procedure for documenting significant postaward actions is pending. Customer relationships. NAVSUP reported that VA’s ability to relate to its customers is at a low point and recommended VA take action to improve customer relations. Some mechanisms VA officials agreed are needed to improve customer relations include requiring that program reviews include both the customer and contracting personnel, greater use and marketing of the existing customer guide to customers and contracting communities, the establishment of a customer feedback mechanism such as satisfaction surveys, placing a customer section on the World Wide Web, and engaging in strategic acquisition planning with customer personnel. We noted that VA is taking some of the actions recommended by NAVSUP. For example, VA has established biweekly meetings with major customer groups, created customer-focused teams to work on specific projects, and nearly completed efforts to issue a comprehensive customer guide. Pending are efforts to include customers in the AOS review process and to develop a customer section on the web site. Employee morale. The NAVSUP report said that VA employee morale is at a low point and is having an impact on employee productivity. NAVSUP said that AOS needs to respond to its employee morale issue by addressing specific employee concerns related to workload distribution, strategic and acquisition planning, communication, and complaint resolution. VA has taken several actions related to employee morale. Workload distribution issues have been addressed by developing a workload and spreadsheet tracking system and removing restrictions on work schedules for employees at ranks of GS-15 and below. Strategic planning actions completed include the development of mission and vision statements by a cross section of VA personnel and collective involvement in approval of organizational restructuring efforts. Communication and complaint resolution issues are being resolved by facilitating a meeting between AOS management and employees to air concerns. Partially completed actions include the development of new employee training module, including a comprehensive new employee orientation package. According to VA, new employee training includes the dissemination of draft standard operating procedures. VA is also in the process of developing an employee survey to measure overall employee satisfaction. Discussions with VA officials indicate that the agency believes its limited progress has largely been due to the absence of permanent leadership and insufficient staffing levels. Officials told us that the recommendations will be implemented once key officials are in place. For example, positions for two key VA acquisition managers—Associate Deputy Assistant Secretary for Acquisitions and the Director for AOS—were unfilled for about 25 months and 15 months, respectively. But during the course of our review these positions were filled. As of August 25, 2005, AOS has still not selected permanent personnel for 17 of its 62 positions. This includes two other key management positions— the Deputy Director of Field Operations and the Deputy Director for VA Central Office Operations, both filled by people in an acting role. Supervisory leadership has also suffered as a consequence of understaffing, VA officials said. Four of the eight supervisory contract specialist positions are filled by people in an acting role. Critical nonsupervisory positions also have remained unfilled, with 11 contract specialists’ positions vacant. The absence of contract specialists has largely been caused by a high turnover rate. According to VA officials, the high turnover rate can be attributed to a heavy contracting workload, as well as the other factors identified in the NAVSUP report. When asked, the VA officials we spoke with could not provide specific time frames for completing actions on the recommendations or a method to measure progress. We believe the lack of an implementation plan with time frames and milestones, as well as a way to measure progress, contributed to VA’s limited progress in implementing the key NAVSUP recommendations. The seven key NAVSUP recommendations we identified have not been fully implemented. While some progress is being made, progress is lacking in those areas that we believe are critical to an efficient and effective acquisition process. If key recommendations for improvement are not adequately addressed, VA has no assurance that billions of its Office of Acquisitions contract dollars will be managed in an efficient and effective manner, or that it can protect the government’s interest in providing veterans with high-quality products, services, and expertise in a timely fashion at a reasonable price. While personnel-related factors have contributed to VA’s lack of progress, the absence of schedules for completion of actions and of metrics that could be used to determine agency progress is also an important factor. Current VA officials, even those in an acting capacity, can identify timetables for completing action on key NAVSUP recommendations and establish a means to determine progress. Without these elements of an action plan, the benefits envisioned by the study may not be fully realized. We recommend that the Secretary of Veterans Affairs direct the Deputy Assistant Secretary for Acquisition and Materiel Management to identify specific time frames and milestones for completing actions on the key NAVSUP recommendations, and establish a method to measure progress in implementing the recommendations. In commenting on a draft of this report, the Deputy Secretary of Veterans Affairs agreed with our conclusions and concurred with our recommendations. VA’s written comments are included in appendix III. We will send copies of this report to the Honorable R. James Nicholson, Secretary of Veterans Affairs; appropriate congressional committees; and other interested parties. We will also provide copies to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions concerning this report, please contact me at (202) 512-4841 or by e-mail at woodsw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report were Blake Ainsworth, Penny Berrier, William Bricking, Myra Watts Butler, Christina Cromley, Lisa Simon, Shannon Simpson, and Bob Swierczek. In September 2004, the Naval Supply System Command (NAVSUP) issued a report, Procurement Performance Management Assessment Program on its review of the Department of Veterans Affairs, Office of Acquisition and Materiel Management, Acquisition Operations Service. The 24 recommendations contained in the NAVSUP report are listed in table 2 below. The first seven recommendations listed are the key recommendations we identified. To select the key recommendations from those identified in the NAVSUP September 2004 report, we focused on recommendations that, if successfully implemented, are likely to have the broadest and most significant impact on the Department of Veterans Affairs’ (VA) operations. We chose recommendations that are crosscutting in nature. Accordingly, in many instances recommendations we did not identify as being key are nevertheless, we believe, covered to some extent by one or more of the key recommendations. In making our selections, we relied primarily on our professional judgment and the experience gained over many years in reviews of acquisition management issues governmentwide. In particular, we relied on the observations and guidance captured in a draft of a GAO report entitled Framework for Assessing the Acquisition Function at Federal Agencies. With this insight, we determined that 7 of the 24 NAVSUP recommendations were key. To identify the progress VA has made in implementing these seven key NAVSUP recommendations, we met with acquisition officials at VA’s Office of Acquisition and Materiel Management (OA&MM). We also reviewed documents intended to demonstrate the status of VA’s actions. In order to attain a broader view of VA acquisition issues, we identified and reviewed other VA and independent reports issued prior to the NAVSUP report. This included VA’s Procurement Reform Task Force (May 2002) report, which recommended ways to improve procurement practices across VA, and reports by the VA Inspector General (August 2004) and Carnegie Mellon (June 2004) that noted contract management problems on a VA contract for the Core Financial and Logistics System (CoreFLS). We reviewed past and current policies, procedures, and internal controls associated with VA acquisition processes. We obtained statistics from OA&MM on the authorized size of the VA Acquisitions Operations Service (AOS) contracting workforce and positions that still need to be filled. We obtained data from the Federal Procurement Data System on what VA spent during fiscal year 2004 for products and services. Further, we obtained data from VA on the amount of contract dollars being managed by VA’s Office of Acquisitions as of June 2005. We did not conduct an independent assessment of the state of the acquisition function at VA. We conducted our work from March to August 2005 in accordance with generally accepted government auditing standards.

The Department of Veterans Affairs (VA) is among the largest federal acquisition agencies, spending $7.3 billion on product and service acquisitions in 2004 alone. Recent reports by VA and other organizations identified weaknesses in the agency's acquisition function that could result in excess costs to the taxpayer. One report by the Naval Supply Systems Command (NAVSUP) made 24 recommendations to improve VA's acquisition function. VA has accepted these recommendations. GAO was asked to review the progress VA has made in implementing the key NAVSUP recommendations. GAO identified 7 of the 24 recommendations as key, based primarily on its professional judgment and prior experience. Progress made by the Department of Veterans Affairs in implementing the key recommendations from the NAVSUP report has been limited. In fact, a year after the report was issued, VA has not completed actions on any of the seven key recommendations GAO identified. While VA agrees implementation of the key recommendations is necessary, the steps it has taken range from no action to partial action. No action has been taken on three key recommendations: to develop a long-term improvement plan, adequate management metrics, and a supplement to the agency's strategic plan. No more than partial action has been taken on four others: establishment of a contract review board for reviewing files at key milestones along with improvement of postaward contract management, customer relationships, and employee morale. A lack of permanent leadership in key positions has contributed to the lack of further progress in revising acquisition policies, procedures, and management and oversight practices, according to VA officials. For example, two key VA acquisitions management positions were unfilled--one for 15 months and the other for 25 months. In addition, VA has neither set time frames for completing actions on the NAVSUP recommendations nor established a method to measure progress. Until VA establishes a process for completing action on the NAVSUP recommendations, the benefits of the study may not be fully realized.

We found that the VA reprocessing requirements we selected for review are inadequate to help ensure veterans’ safety. Lack of specificity about types of RME that require device-specific training. The VA reprocessing requirements we reviewed do not specify the types of RME for which VAMCs must develop device-specific training. This inadequacy has caused confusion among VAMCs and contributed to inconsistent implementation of training for reprocessing. While VA headquarters officials told us that the training requirement is intended to apply to RME classified as critical—such as surgical instruments—and semi-critical—such as certain endoscopes, officials from five of the six VAMCs we visited told us that they were unclear about the RME for which they were required to develop device-specific training. Officials at one VAMC we visited told us that they did not develop all of the required reprocessing training for critical RME—such as surgical instruments—because they did not understand that they were required to do so. Officials at another VAMC we visited also told us that they had begun to develop device-specific training for reprocessing non-critical RME, such as wheelchairs, even though they had not yet fully completed device-specific training for more critical RME. Because these two VAMCs had not developed the appropriate device-specific training for reprocessing critical and semi-critical RME, staff at these VAMCs may not have been reprocessing all RME properly, which potentially put the safety of veterans receiving care at these facilities at risk. Conflicting guidance on the development of RME reprocessing training. While VA requires VAMCs to develop device-specific training on reprocessing RME, VA headquarters officials provided VAMCs with conflicting guidance on how they should develop this training. For example, officials at three VAMCs we visited told us that certain VA headquarters or VISN officials stated that this device-specific training should very closely match manufacturer guidelines–-in one case verbatim—while other VA headquarters or VISN officials stated that this training should be written in a way that could be easily understood by the personnel responsible for reprocessing RME. This distinction is important, since VAMC officials told us that some of the staff responsible for reprocessing RME may have difficulty following the more technical manufacturers’ guidelines. In part because of VA’s conflicting guidance, VAMC officials told us that they had difficulty developing the required device-specific training and had to rewrite the training materials multiple times for RME at their facilities. Officials at five of the six VAMCs also told us that developing the device-specific training for reprocessing RME was both time consuming and resource intensive. VA’s lack of specificity and conflicting guidance regarding its requirement to develop device-specific training for reprocessing RME may have contributed to delays in developing this training at several of the VAMCs we visited. Officials from three of the six VAMCs told us that that they had not completed the development of device-specific training for RME since VA established the training requirement in July 2009. As of October 2010, 15 months after VA issued the policy containing this requirement, officials at one of the VAMCs we visited told us that device-specific training on reprocessing had not been developed for about 80 percent of the critical and semi-critical RME in use at their facility. VA headquarters officials told us that they are aware of the lack of specificity and conflicting guidance provided to VAMCs regarding the development of training for reprocessing RME and were also aware of inefficiencies resulting from each VAMC developing its own training for reprocessing types of RME that are used in multiple VAMCs. In response, VA headquarters officials told us that they have made available to all VAMCs a database of standardized device-specific training developed by RME manufacturers for approximately 1,000 types of RME and plan to require VAMCs to implement this training by June 2011. The officials also told us that VA headquarters is planning to develop device-specific training available to all VAMCs for certain critical and semi-critical RME for which RME manufacturers have not developed this training, such as dental instruments. However, as of February 2011, VA headquarters had not completed the development of device-specific training for these RME and has not established plans or corresponding timelines for doing so. We found that VA recently made changes to its oversight of VAMCs’ compliance with selected reprocessing requirements; however, this oversight continues to have weaknesses. Beginning in fiscal year 2011, VA headquarters directed VISNs to make three changes intended to improve its oversight of these reprocessing requirements at VAMCs. VA headquarters recently required VISNs to increase the frequency of site visits to VAMCs—from one to three unannounced site visits per year—as a way to more quickly identify and address areas of noncompliance with selected VA reprocessing requirements. VA headquarters also recently required VISNs to begin using a standardized assessment tool to guide their oversight activities. According to VA headquarters officials, requiring VISNs to use this assessment tool will enable the VISNs to collect consistent information on VAMCs’ compliance with VA’s reprocessing requirements. Before VA established this requirement, the six VISNs that oversee the VAMCs we visited often used different assessment tools to guide their oversight activities. As a result, they reviewed and collected different types of information on VAMCs’ compliance with these requirements. VISNs are now required to report to VA headquarters information from their site visits. Specifically, following each unannounced site visit to a VAMC, VISNs are required to provide VA headquarters with information on the facility’s noncompliance with VA’s reprocessing requirements and VAMCs’ corrective action plans to address areas of noncompliance. Prior to fiscal year 2011, VISNs were generally not required to report this information to VA headquarters. Despite the recent changes, VA’s oversight of its reprocessing requirements, including those we selected for review, has weaknesses in the context of the federal internal control for monitoring. Consistent with the internal control for monitoring, we would expect VA to analyze this information to assess the risk of noncompliance and ensure that noncompliance is addressed. However, VA headquarters does not analyze information to identify the extent of noncompliance across all VAMCs, including noncompliance that occurs frequently or poses high risks to veterans’ safety. As a result, VA headquarters has not identified the extent of noncompliance across VAMCs with, for example, VA’s operational reprocessing requirement that staff use personal protective equipment when performing reprocessing activities, which is key to ensuring that clean RME are not contaminated by coming into contact with soiled hands or clothing. Three of the six VAMCs we visited had instances of noncompliance with this requirement. Similarly, because VA headquarters does not analyze information from VAMCs’ corrective action plans to address noncompliance with VA reprocessing requirements, it is unable to confirm, for example, whether VAMCs have addressed noncompliance with its operational reprocessing requirement to separate clean and dirty RME. Two of the six VAMCs we visited had not resolved noncompliance with this requirement and, as a result, are unable to ensure that clean RME does not become contaminated by coming into contact with dirty RME. VA headquarters officials told us that VA plans to address the weaknesses we identified in its oversight of VAMCs’ compliance with reprocessing requirements. Specifically, VA headquarters officials told us that they intend to develop a systematic approach to analyze oversight information to identify areas of noncompliance across all VAMCs, including those that occur frequently, pose high risks to veterans’ safety, or have not been addressed in a timely manner. While VA has established a timeline for completing these changes, certain VA headquarters officials told us that they are unsure whether this timeline is realistic due to possible delays resulting from VA’s ongoing organizational realignment, which had not been completed as of April 6, 2011. In conclusion, weaknesses exist in VA’s policies for reprocessing RME that create potential safety risks to veterans. VA’s lack of specificity and conflicting guidance for developing device-specific training for reprocessing RME has led to confusion among VAMCs about which types of RME require device-specific training and how VAMCs should develop that training. This confusion has contributed to some VAMCs not developing training for their staff for some critical and semi-critical RME. Moreover, weaknesses in oversight of VAMCs’ compliance with the selected reprocessing requirements do not allow VA to identify and address areas of noncompliance across VAMCs, including those that occur frequently, pose high risks to veterans’ safety, or have not been addressed by VAMCs. Correcting inadequate policies and providing effective oversight of reprocessing requirements consistent with the federal standards for internal control is essential for VA to prevent potentially harmful incidents from occurring. To help ensure veterans’ safety through VA’s reprocessing requirements, we are making two recommendations in our report. We recommend that the Secretary of Veterans Affairs direct the Under Secretary for Health to take the following actions: Develop and implement an approach for providing standardized training for reprocessing all critical and semi-critical RME to VAMCs. Additionally, hold VAMCs accountable for implementing device-specific training for all of these RME. Use the information on noncompliance identified by the VISNs and information on VAMCs’ corrective action plans to identify areas of noncompliance across all 153 VAMCs, including those that occur frequently, pose high risks to veterans’ safety, or have not been addressed, and take action to improve compliance in those areas. In responding to a draft of the report from which this testimony is based, VA concurred with these recommendations. Chairman Miller, Ranking Member Filner, this concludes my prepared statement. I would be happy to respond to any questions you or other Members of the Committee may have. For further information about this testimony, please contact Randall B. Williamson at (202) 512-7114 or williamsonr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals who made key contributions to this testimony include Mary Ann Curran, Assistant Director; Kye Briesath; Krister Friday; Melanie Krause; Lisa Motley; and Michael Zose. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony discusses patient safety incidents at Department of Veterans Affairs (VA) medical centers and potential strategies to address the underlying causes of those incidents. VA operates one of the largest integrated health care delivery systems in the United States, providing care to over 5.5 million veterans annually. Organized into 21 Veterans Integrated Service Networks (VISN), VA's health care system includes 153 VA medical centers (VAMC) nationwide that offer a variety of outpatient, residential, and inpatient services. In providing health care services to veterans, clinicians at VAMCs use reusable medical equipment (RME), which is designed to be reused for multiple patients and includes such equipment as endoscopes and some surgical and dental instruments. Because RME is used when providing care to multiple veterans, this equipment must be reprocessed--that is, cleaned and disinfected or sterilized--between uses. VA has established requirements for VAMCs to follow when reprocessing RME, which are designed, in part, to help ensure the safety of the veterans who receive care at VAMCs. This testimony, based on our May 2011 report, which is being released today, examines issues related to veterans' safety, including (1) selected reprocessing requirements established in VA policies, based on their relevance to patient safety incidents and (2) VA's oversight of VAMCs' compliance with these selected requirements. In summary, we found that the VA reprocessing requirements we selected for review are inadequate to help ensure the safety of veterans who receive care at VAMCs. Although VA requires VAMCs to develop devicespecific training for staff on how to correctly reprocess RME, it has not specified the types of RME for which this training is required. Furthermore, VA has provided conflicting guidance to VAMCs on how to develop device-specific training on reprocessing RME. This lack of clarity may have contributed to delays in developing the required training. Without appropriate training on reprocessing, VAMC staff may not be reprocessing RME correctly, which poses potential risks to veterans' safety. VA headquarters officials told us that VA has plans to develop training for certain RME, but VA lacks a timeline for developing this training. We also found that despite changes to improve VA's oversight of VAMCs' compliance with selected reprocessing requirements, weaknesses still exist. These weaknesses render VA unable to systematically identify and address noncompliance with the requirements, which poses potential risks to the safety of veterans. Although VA headquarters receives information from the VISNs on any noncompliance they identify, as well as VAMCs' corrective action plans to address this noncompliance, VA headquarters does not analyze this information to inform its oversight. According to VA headquarters officials, VA intends to develop a plan for analyzing this information to systematically identify areas of noncompliance that occur frequently, pose high risks to veterans' safety, or have not been addressed across all VAMCs. To address the inadequacies we identified in selected VA reprocessing requirements, GAO recommends that VA develop and implement an approach for providing standardized training for reprocessing all critical and semi-critical RME to VAMCs and hold VAMCs accountable for implementing this training. To address the weaknesses in VA's oversight of VAMCs' compliance with selected requirements, GAO recommends that VA use information on noncompliance identified by the VISNs and information on VAMCs' corrective action plans to identify areas of noncompliance across all 153 VAMCs and take action to improve compliance in those areas.

The structure of DHS’s acquisition function creates ambiguity about who is accountable for acquisition decisions. A common theme in our work on DHS’s acquisition management has been the department’s struggle from the outset to provide adequate support for its mission components and resources for departmentwide oversight. Of the 22 components that initially joined DHS from other agencies, 7 came with their own procurement support. In January 2004, a year after the department was created, an eighth office, the Office of Procurement Operations, was created to provide support to a variety of DHS entities. To improve oversight, in December 2005, CPO established a departmentwide acquisition oversight program, designed to provide comprehensive insight into each component’s acquisitions and disseminate successful acquisition management approaches throughout DHS. DHS has set a goal of integrating the acquisition function more broadly across the department. Prior GAO work has shown that to implement acquisition effectively across a large federal organization requires an integrated structure with standardized policies and processes, the appropriate placement of the acquisition function within the department, leadership that fosters good acquisition practices, and a general framework that delineates the key phases along the path for a major acquisition. An effective acquisition organization has in place knowledgeable personnel who work together to meet cost, quality, and timeliness goals while adhering to guidelines and standards for federal acquisition. DHS, however, relies on dual accountability and collaboration between the CPO and the heads of DHS’s components. The October 2004 management directive for its acquisition line of business—the department’s principal guidance for leading, governing, integrating, and managing the acquisition function—allows managers from each component organization to commit resources to training, development, and certification of acquisition professionals. It also highlights the CPO’s broad authority, including management, administration, and oversight of departmentwide acquisition. However, we have reported that the directive may not achieve its goal of creating an integrated acquisition organization because it creates unclear working relationships between the CPO and the heads of DHS components. For example, some of the duties delegated to the CPO have also been given to the heads of DHS’s components, such as recruiting and selecting key acquisition officials at the components, and providing appropriate resources to support the CPO’s initiatives. Accountability for acquisitions is further complicated because, according to DHS, the Coast Guard and Secret Service were exempted from its acquisition management directive because of DHS’s interpretation of the Homeland Security Act. We have questioned this exemption, and recently CPO officials have told us that they are working to revise the directive to make it clear that the Coast Guard and Secret Service are not exempt. Furthermore, for major investments—those exceeding $50 million—accountability, visibility, and oversight is shared among the CPO, the Chief Financial Officer, the Chief Information Officer, and other senior management. Recently, the DHS Inspector General’s 2007 semiannual report stated an integrated acquisition system still does not exist, but noted that that the atmosphere for collaboration between DHS and its component agencies on acquisition matters has improved. In addition, our work and the work of the DHS Inspector General has found acquisition workforce challenges across the department. In 2005, we reported on disparities in the staffing levels and workload among the component procurement offices. We recommended that DHS conduct a departmentwide assessment of the number of contracting staff, and if a workload imbalance were to be found, take steps to correct it by realigning resources. In 2006, DHS reported significant progress in providing staff for the component contracting offices, though much work remained to fill the positions with qualified, trained acquisition professionals. DHS has established a goal of aligning procurement staffing levels with contract spending at its various components by the last quarter of fiscal year 2009. Staffing of the CPO Office also has been a concern, but recent progress has been made. According to CPO officials, their small staff faces the competing demands of providing acquisition support for urgent needs at the component level and conducting oversight. For example, CPO staff assisted the Federal Emergency Management Agency in contracting for the response to Gulf Coast hurricanes Katrina and Rita. As a result, they needed to focus their efforts on procurement execution rather than oversight. In 2005, we recommended that the Secretary of Homeland Security provide the CPO with sufficient resources to effectively oversee the department’s acquisitions. In 2006, we reported that the Secretary had supported an increase of 25 positions for the CPO to improve acquisition management and oversight. DHS stated that these additional personnel will significantly contribute to continuing improvement in the DHS acquisition and contracting enterprise. To follow-up on some of these efforts, we plan to conduct additional work on DHS acquisition workforce issues in the near future. Our prior work has shown that in a highly functioning acquisition organization, the CPO is in a position to oversee compliance by implementing strong oversight mechanisms. Accordingly, in December 2005, the CPO established a departmentwide acquisition oversight program, designed to provide comprehensive insight into each component’s acquisition programs and disseminate successful acquisition management approaches throughout DHS. The program is based in part on elements essential to an effective, efficient, and accountable acquisition process: organizational alignment and leadership, policies and processes, financial accountability, acquisition workforce, and knowledge management and information systems. The program includes four recurring reviews, as shown in table 1. In September 2006, we reported that the CPO’s limited staff resources had delayed the oversight program’s implementation, but the program is well under way, and DHS plans to implement the full program in fiscal year 2007. Recently, the CPO has made progress in increasing staff to authorized levels, and as part of the department’s fiscal year 2008 appropriation request, the CPO is seeking three additional staff, for a total of 13 oversight positions for this program. We plan to report on the program later this month. While this program is a positive step, we have reported that the CPO lacks the authority needed to ensure the department’s components comply with its procurement policies and procedures such as the acquisition oversight program. We reported in September 2006 that the CPO’s ability to effectively oversee the department’s acquisitions and manage risks is limited, and we continue to believe that the CPO’s lack of authority to achieve the department’s acquisition goals is of concern. In 2003, DHS put in place an investment review process to help protect its major, complex investments. The investment review process is intended to reduce risk associated with these investments and increase the chances for successful outcomes in terms of cost, schedule, and performance. In March 2005, we reported that in establishing this process, DHS has adopted a number of acquisition best practices that, if applied consistently, could help increase the chance for successful outcomes. However, we noted that incorporating additional program reviews and knowledge deliverables into the process could better position DHS to make well-informed decisions on its major, complex investments. Specifically, we noted that the process did not include two critical management reviews that would help ensure that (1) resources match customer needs prior to beginning a major acquisition and (2) program designs perform as expected before moving to production. We also noted that the review process did not fully address how program managers are to conduct effective contractor tracking and oversight. The investment review process is still under revision, and the department’s performance and accountability report for fiscal year 2006 stated that DHS will incorporate changes to the process by the first quarter of fiscal year 2008. Our best practices work shows that successful investments reduce risk by ensuring that high levels of knowledge are achieved at these key points of development. We have found that investments that were not reviewed at the appropriate points faced problems—such as redesign—that resulted in cost increases and schedule delays. Concerns have been raised about the effectiveness of the review process for large investments at DHS. For example, in November 2006, the DHS Inspector General reported on the Customs and Border Protection’s Secure Border Initiative program, noting that the department’s existing investment oversight processes were sidelined in the urgent pursuit of SBInet’s aggressive schedule. The department’s investment review board and joint requirements council provide for deliberative processes to obtain the counsel of functional stakeholders. However, the DHS Inspector General reported that for SBInet, these prescribed processes were bypassed and key decisions about the scope of the program and the acquisition strategy were made without rigorous review and analysis or transparency. The department has since announced plans to complete these reviews to ensure the program is on the right track. To quickly get the department up and running and to obtain necessary expertise, DHS has relied extensively on other agencies’ and its own contracts for a broad range of mission-related services and complex acquisitions. Governmentwide, increasing reliance on contractors has been a longstanding concern. Recently, in 2006, government, industry and academic participants in a GAO forum on federal acquisition challenges and opportunities noted that many agencies rely extensively on contractors to carry out their basic missions. The growing complexity of contracting for technically difficult and sophisticated services increases challenges in terms of setting appropriate requirements and effectively monitoring contractor performance. With the increased reliance on contractors comes the need for an appropriate level of oversight and management attention to its contracting for services and major systems. Our work to date has found that DHS faces challenges in managing services acquisitions through interagency contracting—a process by which agencies can use another agency’s contracting services or existing contracts often for a fee. In 2005, DHS spent over $6.5 billion on interagency contracts. We found that DHS did not systematically monitor or assess its use of interagency contracts to determine whether this method provides good outcomes for the department. Although interagency contracts can provide the advantages of timeliness and efficiency, use of these types of vehicles can also pose risks if they are not properly managed. GAO designated management of interagency contracting a governmentwide high risk area in 2005. A number of factors can make these types of contracts high risk, including their use by some agencies that have limited expertise with this contracting method and their contribution to a much more complex procurement environment in which accountability has not always been clearly established. In an interagency contracting arrangement, both the agency that holds and the agency that makes purchases against the contract share responsibility for properly managing the use of the contract. However, these shared responsibilities often have not been well defined. As a result, our work and that of some agency inspectors general has found cases in which interagency contracting has not been well managed to ensure that the government is getting good value. Government agencies, including DHS components, have turned to a systems integrator in situations such as when they believe they do not have the in-house capability to design, develop, and manage complex acquisitions. This arrangement creates an inherent risk, as the contractor is given more discretion to make certain program decisions. Along with this greater discretion comes the need for more government oversight and an even greater need to develop well-defined outcomes at the outset. Our reviews of the Coast Guard’s Deepwater program have found that the Coast Guard had not effectively managed the program or overseen the system integrator. Specifically, we expressed concerns and made a number of recommendations to improve the program in three areas: program management, contractor accountability, and cost control through competition. While the Coast Guard took some actions in response to some of our concerns, they have recently announced a series of additional steps to address problems with the Deepwater program, including taking on more program management responsibilities from the systems integrator. We also have ongoing work reviewing other aspects of DHS acquisition management. For example, we are reviewing DHS’s contracts that closely support inherently governmental functions and the level of oversight given to these contracts. Federal procurement regulation and policy contain special requirements for overseeing service contracts that have the potential for influencing the authority, accountability, and responsibilities of government officials. Agencies are required to provide greater scrutiny of these service contracts and an enhanced degree of management oversight, which includes assigning a sufficient number of qualified government employees to provide oversight, to better ensure that contractors do not perform inherently governmental functions. The risks associated with contracting for services that closely support the performance of inherently governmental functions are longstanding governmentwide concerns. We are also reviewing oversight issues related to DHS’s use of performance-based services acquisitions. If this acquisition method is not appropriately planned and structured, there is an increased risk that the government may receive products or services that are over cost estimates, delivered late, and of unacceptable quality. Since DHS was established in 2003, it has been challenged to integrate 22 separate federal agencies and organizations with multiple missions, values, and cultures into one cabinet-level department. Due to the complexity of its organization, DHS is likely to continue to face challenges in integrating the acquisition functions of its components and overseeing their acquisitions—particularly those involving large and complex investments. Given the size of DHS and the scope of its acquisitions, we are continuing to assess the department’s acquisition oversight process and procedures in ongoing work. Mr. Chairman, this concludes my statement. I would be happy to respond to any questions you or other members of the subcommittee may have at this time. For further information regarding this testimony, please contact John Hutton at (202) 512-4841 or huttonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this product. Other individuals making key contributions to this testimony were Amelia Shachoy, Assistant Director; Tatiana Winger; William Russell; Heddi Nieuwsma; Karen Sloan; and Sylvia Schatz. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

In fiscal year 2006, the Department of Homeland Security (DHS) obligated $15.6 billion to support its broad and complex acquisition portfolio. Since it was tasked with integrating 22 separate federal agencies and organizations into one cabinet-level department, DHS has been working to create an integrated acquisition organization while addressing its ongoing mission requirements and responding to natural disasters and other emergencies. Due to the enormity of this challenge, GAO designated the establishment of the department and its transformation as high-risk in January 2003. This testimony discusses DHS's (1) challenges to creating an integrated acquisition function; (2) investment review process; and (3) reliance on contracting for critical needs. This testimony is based primarily on prior GAO reports and testimonies. The structure of DHS's acquisition function creates ambiguity about who is accountable for acquisition decisions because it depends on a system of dual accountability and collaboration between the Chief Procurement Officer (CPO) and the component heads. Further, a common theme in GAO's work on acquisition management has been DHS's struggle to provide adequate support for its mission components and resources for departmentwide oversight. In 2006, DHS reported significant progress in staffing for the components and the CPO, though much work remained to fill the positions. In addition, DHS has established an acquisition oversight program, designed to provide the CPO comprehensive insight into each component's acquisition programs and disseminate successful acquisition management approaches departmentwide. However, GAO continues to be concerned that the CPO may not have sufficient authority to effectively oversee the department's acquisitions. In 2003, DHS put in place an investment review process to help protect its major complex investments. In 2005, GAO reported that this process adopted many acquisition best practices that, if applied consistently, could help increase the chances for successful outcomes. However, GAO noted that incorporating additional program reviews and knowledge deliverables into the process could better position DHS to make well-informed decisions. Concerns have been raised about how the investment review process has been used to oversee its largest acquisitions, and DHS plans to revise the process. DHS has contracted extensively for a broad range of services and complex acquisitions. The growing complexity of contracting for technically difficult and sophisticated services increases challenges in terms of setting appropriate requirements and effectively monitoring contractor performance. However, DHS has been challenged to provide the appropriate level of oversight and management attention to its contracting for services and major systems.

FHWA is the DOT agency responsible for federal highway programs— including distributing billions of dollars in federal highway funds to the states—and developing federal policy regarding the nation’s highways. The agency provides technical assistance to improve the quality of the transportation network, conducts transportation research, and disseminates research results throughout the country. FHWA’s program offices conduct these activities through its Research and Technology Program, which includes “research” (conducting research activities), “development” (developing practical applications or prototypes of research findings), and “technology” (communicating research and development knowledge and products to users). FHWA maintains a highway research facility in McLean, Virginia. This facility, known as the Turner-Fairbank Highway Research Center, has over 24 indoor and outdoor laboratories and support facilities. Approximately 300 federal employees, on-site contract employees, and students are currently engaged in transportation research at the center. FHWA’s research and technology program is based on the research and technology needs of each of its program offices such as the Offices of Infrastructure, Safety, or Policy. Each of the program offices is responsible for identifying research needs, formulating strategies to address transportation problems, and setting goals for research and technology activities that support the agency’s strategic goals. (See Appendix I for examples of research that these offices undertake.) One program office that is located at FHWA’s research facility provides support for administering the overall program and conducts some of the research. The agency’s leadership team, consisting of the associate administrators of the program offices and other FHWA offices, provides periodic oversight of the overall program. In 2002 FHWA appointed the Director of its Office of Research, Development, and Technology as the focal point for achieving the agency’s national performance objective of increasing the effectiveness of all FHWA program offices, as well as its partners and stakeholders, in determining research priorities and deploying technologies and innovation. In addition to the research activities within FHWA, the agency collaborates with other DOT agencies to conduct research and technology activities. For example, FHWA works with DOT’s Research and Special Programs Administration to coordinate efforts to support key research identified in the department’s strategic plan. Other nonfederal research and technology organizations also conduct research funded by FHWA related to highways and bridges. Among these are state research and technology programs that address technical questions associated with the planning, design, construction, rehabilitation, and maintenance of highways. In addition, the National Cooperative Highway Research Program conducts research on acute problems related to highway planning, design, construction, operation, and maintenance that are common to most states. Private organizations, including companies that design and construct highways and supply highway-related products, national associations of industry components, and engineering associations active in construction and highway transportation, also conduct or sponsor individual programs. Universities receive funding for research on surface transportation from FHWA, the states, and the private sector. Leading organizations that conduct scientific and engineering research, other federal agencies with research programs, and experts in research and technology have identified and use best practices for developing research agendas and evaluating research outcomes. Although the uncertain nature of research outcomes over time makes it difficult to set specific, measurable program goals and evaluate results, the best practices we identified are designed to ensure that the research objectives are related to the areas of greatest interest and concern to research users and that research is evaluated according to these objectives. These practices include (1) developing research agendas through the involvement of external stakeholders and (2) evaluation of research using techniques such as expert review of the quality of research outcomes. External stakeholder involvement is particularly important for FHWA because its research is expected to improve the construction, safety, and operation of transportation systems that are primarily managed by others, such as state departments of transportation. According to the Transportation Research Board’s Research and Technology Coordinating Committee, research has to be closely connected to its stakeholders to help ensure relevance and program support, and stakeholders are more likely to promote the use of research results if they are involved in the research process from the start. The committee also identified merit review of research proposals by independent technical experts based on technical criteria as being necessary to help ensure the most effective use of federal research funds. In 1999, we reported that other federal science agencies—such as the Environmental Protection Agency and the National Science Foundation—used such reviews to varying degrees to assess the merits of competitive and noncompetitive research proposals. In April 2002, the Office of Management and Budget issued investment criteria for federal research and technology program budgets that urge these agencies to put into place processes to assure the relevance, quality and performance of their programs. For example, the guidance requires these programs to have agendas that are assessed prospectively and retrospectively through external review to ensure that funds are being expended on quality research efforts. The Committee on Science, Engineering, and Public Policy reported in 1999 that federal agencies that support research in science and engineering have been challenged to find the most useful and effective ways to evaluate the performance and results of the research programs they support. Nevertheless, the committee found that research programs, no matter what their character and goals, can be evaluated meaningfully on a regular basis and in accordance with the Government Performance and Results Act. Similarly, in April 2002 the Office of Management and Budget issued investment criteria for federal research and technology program budgets that require these programs to define appropriate outcome measures and milestones that can be used to track progress toward goals and assess whether funding should be enhanced or redirected. In addition, program quality should be assessed periodically in relation to these criteria through retrospective expert review. The Committee on Science, Engineering, and Public Policy also emphasized that the evaluation methods must match the type of research and its objectives, and it concluded that expert or peer review is a particularly effective means to evaluate federally funded research. Peer review is a process that includes an independent assessment of the technical and scientific merit or quality of research by peers with essential subject area expertise and perspective equal to that of the researchers. Peer review does not require that the final impact of the research be known. In 1999, we reported that federal agencies, such as the Department of Agriculture, the National Institutes of Health, and the Department of Energy, use peer review to help them (1) determine whether to continue or renew research projects, (2) evaluate the results of research prior to publication of those results, and (3) evaluate the performance of programs and scientists. In its 1999 report, the Committee on Science, Engineering, and Public Policy also stated that expert review is widely used to evaluate: (1) the quality of current research as compared with other work being conducted in the field, (2) the relevance of research to the agency’s goals and mission, and (3) whether the research is at the “cutting edge.” Although FHWA engages external stakeholders in elements of its research and technology program, the agency currently does not follow the best practice of engaging external stakeholders on a consistent and transparent basis in setting its research agendas. The agency expects each program office to determine how or whether to involve external stakeholders in the agenda setting process. As we reported in May 2002, FHWA acknowledges that its approach to preparing research agendas is inconsistent and that the associate administrators of FHWA’s program offices primarily use input from the agency’s program offices, resource centers, and division offices. Although agency officials told us that resource center and division office staff provide the associate administrators with input based on their interactions with external stakeholders, to the extent that external stakeholder input into developing research agendas occurs, it is usually ad hoc and provided through technical committees and professional societies. For example, the agency’s agenda for environmental research was developed with input from both internal sources (including DOT’s and FHWA’s strategic plans and staff) and external sources (including the Transportation Research Board’s reports on environmental research needs and clean air, environmental justice leaders, planners, civil rights advocates, and legal experts). In our May 2002 report we recommended that FHWA develop a systematic approach for obtaining input from external stakeholders in determining its research and technology program’s agendas. FHWA concurred with our recommendation and has taken steps to develop such an approach. FHWA formed a planning group consisting of internal stakeholders as well as representatives from the Research and Special Programs Administration and the Pennsylvania Department of Transportation to determine how to implement our recommendation. This planning group prepared a report analyzing the approaches that four other federal agencies are taking to involve external stakeholders in setting their research and technology program agendas. Using the lessons learned from reviewing these other agencies’ activities, FHWA has drafted a Corporate Master Plan for Research and Deployment of Technology & Innovation. Under the draft plan, the agency would be required to establish specific steps for including external stakeholders in the agenda setting process for all areas of research throughout the agency’s research and technology program by fiscal year 2004. In drafting this plan, FHWA officials obtained input from internal stakeholders as well as external stakeholders, including state departments of transportation, academia, consultants, and members of the Transportation Research Board. It appears that FHWA has committed to taking the necessary steps to adopt the best practice of developing a systematic process for involving external stakeholders in the agenda setting process. The draft plan invites external stakeholders to assist FHWA with such activities as providing focus and direction to the research and technology program and setting the program’s agendas and priorities. However, because FHWA’s plan has not been finalized, we cannot comment on its potential effectiveness in involving external stakeholders. As we reported last year, FHWA does not have an agency wide systematic process to evaluate whether its research projects are achieving intended results that uses such techniques as peer review. Although the agency’s program offices may use methods such as obtaining feedback from customers and evaluating outputs or outcomes versus milestones, they all use success stories as the primary method to evaluate and communicate research outcomes. According to agency officials, success stories are examples of research results adopted or implemented by such stakeholders as state departments of transportation. These officials told us that success stories can document the financial returns on investment and nonmonetary benefits of research and technology efforts. However, we raised concerns that success stories are selective and do not cover the breadth of FHWA’s research and technology program. In 2001, the Transportation Research Board’s Research and Technology Coordinating Committee concluded that peer or expert review is an appropriate way to evaluate FHWA’s surface transportation research and technology program. Therefore, the committee recommended a variety of actions, including a systematic evaluation of outcomes by panels of external stakeholders and technical experts to help ensure the maximum return on investment in research. Agency officials told us that increased stakeholder involvement and peer review will require significant additional expenditures for the program. However, a Transportation Research Board official told us that the cost of obtaining expert assistance could be relatively low because the time needed to provide input would be minimal and could be provided by such inexpensive methods as electronic mail. In our May 2002 report, we recommended that FHWA develop a systematic process for evaluating significant ongoing and completed research that incorporates peer review or other best practices in use at federal agencies that conduct research. While FHWA has concurred that the agency must measure the performance of its research and technology program, it has not developed, defined or adopted a framework for measuring performance. FHWA’s report on efforts of other federal agencies that conduct research, discussed above, analyzed the approaches that four other federal agencies are taking to evaluate their research and technology programs using these best practices. According to FHWA’s assistant director for Research, Technology, and Innovation Deployment, the agency is using the results of this report to develop its own systematic approach for evaluating its research and technology program. However, this official noted that FHWA has been challenged to find the most useful and effective ways to evaluate the performance and results of the agency’s research and technology program. According to FHWA’s draft Corporate Master Plan for Research and Deployment of Technology & Innovation, FHWA is committed to developing a systematic method of evaluating its research and technology program that includes the use of a merit review panel. This panel would conduct evaluations and reviews in collaboration with representatives from FHWA staff, technical experts, peers, special interest groups, senior management, and contracting officers. According to the draft plan, these merit reviews would be conducted on a periodic basis for program-level and agency-level evaluations, while merit reviews at the project level would depend on the project’s size and complexity. FHWA is still in the process of developing, defining, and adopting a framework for measuring performance. Therefore, we cannot yet comment on how well FHWA’s efforts to evaluate research outcomes will follow established best practices. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or Members of the Committee may have. For further information on this testimony, please contact Katherine Siggerud at (202) 512-2834 or siggerudk@gao.gov. Deena Richart made key contributions to this testimony. FHWA’s research and technology program is based on the research and technology needs of each of its program offices such as the Offices of Infrastructure, Safety, and Policy. Each of the program offices is responsible for identifying research needs, formulating strategies to address transportation problems, and setting goals for research and technology activities that support the agency’s strategic goals. (See table 1.)

Improvement and innovation based on highway research have long been important to the highway system. The Federal Highway Administration (FHWA) is the primary federal agency involved in highway research. Throughout the past decade, FHWA received hundreds of millions of dollars for its surface transportation research program, including nearly half of the Department of Transportation's approximate $1 billion budget for research in fiscal year 2002. Given the expectations of highway research and the level of resources dedicated to it, it is important to know that FHWA is conducting high quality research that is relevant and useful. In May 2002, GAO issued a report on these issues and made recommendations to FHWA, which the agency agreed with, aimed at improving its processes for setting research agendas and evaluating its research efforts. GAO was asked to testify on (1) best practices for developing research agendas and evaluating research outcomes for federal research programs; (2) how FHWA's processes for developing research agendas align with these best practices; and (3) how FHWA's processes for evaluating research outcomes align with these best practices. Leading organizations, federal agencies, and experts that conduct scientific and engineering research use best practices designed to ensure that research objectives are related to the areas of greatest interest to research users and that research is evaluated according to these objectives. Of the specific best practices recommended by experts--such as the Committee on Science, Engineering, and Public Policy and the National Science Foundation--GAO identified the following practices as particularly relevant for FHWA: (1) developing research agendas in consultation with external stakeholders to identify high-value research and (2) using a systematic approach to evaluate research through such techniques as peer review. FHWA's processes for developing its research agendas do not always consistently include stakeholder involvement. External stakeholder involvement is important for FHWA because its research is to be used by others that manage and construct transportation systems. FHWA acknowledges that its approach for developing research agendas lacks a systematic process to ensure that external stakeholders are involved. In response to GAO's recommendation, FHWA has drafted plans that take the necessary steps toward developing a systematic process for involving external stakeholders. While the plans appear responsive to GAO's recommendation, GAO cannot evaluate their effectiveness until they are implemented. FHWA does not have a systematic process that incorporates techniques such as peer review for evaluating research outcomes. Instead, the agency primarily uses a "success story" approach to communicate about those research projects that have positive impacts. As a result, it is unclear the extent to which all research projects have achieved their objectives. FHWA acknowledges that it must do more to measure the performance of its research program, however, it is still in the process of developing a framework for this purpose. While FHWA's initial plans appear responsive to GAO's recommendation, GAO cannot evaluate their effectiveness until they are implemented.

The military services and defense agencies face three long-standing challenges with processing, exploiting, and disseminating ISR data. First, since 2002, DOD has rapidly increased its ability to collect ISR data in Iraq and Afghanistan; however, its capacity for processing, exploiting, and dissemination is limited and has not kept pace with the increase in collection platforms and combat air patrols. For example, the Air Force has substantially increased the number of combat air patrols that ISR collection platforms are performing in the U.S. Central Command theater of operations. Specifically, the number of combat air patrols flown by the Air Force’s Predator and Reaper unmanned aircraft systems has increased from 13 to 36 since 2007. Moreover, in the 2010 Quadrennial Defense Review Report, DOD stated that it will continue to expand the Predator and Reaper combat air patrols to 65 by fiscal year 2015. This increase in data collection will also increase the burden on the Air Force’s ground processing system, which processes, exploits, and disseminates the ISR information collected by these platforms. Second, transmitting data from ISR collection platforms to ground stations where analysts process, exploit, and then disseminate intelligence to users requires high-capacity communications bandwidth. However, bandwidth can be limited in a theater of operations by the satellite and ground-based communication capacity. An insufficient amount of bandwidth affects the ability to send, receive, and download intelligence products that contain large amounts of data. For example, intelligence products derived from ISR geospatial data have high bandwidth requirements—the higher the resolution of the product, the longer the transmission time via a given bandwidth. DOD officials have acknowledged that limited bandwidth is a continual challenge in Iraq because of the warfighter’s reliance on geospatial data. GAO and others have reported that DOD continues to face a growing need for communications bandwidth in combat operations. Third, the military services and defense agencies are challenged by shortages in the numbers of analytical staff available to exploit all of the electronic signals and geospatial ISR information being collected, raising the risk that important information may not be analyzed and made available to commanders in a timely manner. For example, according to U.S. Central Command officials, the command exploits less than one-half of the electronic signals intercepts collected from the Predator. According to DOD officials, finding native speakers of the collected languages to successfully translate and exploit data collected in those foreign languages is difficult, and training language analysts takes time and is difficult to manage with the deployment schedule. In addition, language analysts who translate and exploit electronic signals intelligence data must qualify for security clearances that require rigorous background examinations. The National Security Agency has experienced difficulties in hiring language analysts who can obtain clearances and have the appropriate skill levels in both English and the language for translation. DOD has recognized the need to enhance its processing, exploitation, and dissemination capabilities and is developing and implementing initiatives to do so, but its initiatives are in the early stages of implementation and it is too soon to tell how effective they will be in addressing current challenges. For example, in the short term, DOD has placed its priority for processing, exploitation, and disseminating electronic signals intelligence on the information collected in Afghanistan because the Commander of U.S. Central Command has designated those missions as a high priority. In the long term, DOD has taken several actions intended to sustain, expand, and improve processing, exploitation, and dissemination capabilities. For example, DOD has studies, such as an ISR force-sizing study, under way which include examining how to improve the management of its processing, exploitation, and dissemination capabilities. However, DOD has not set dates for when all of these studies will be complete and it is too soon to know whether they will lead to the desired effect of increased support to the warfighter for current operations. The Air Force and the National Security Agency also have plans to increase analyst personnel in response to the increase in ISR collection. The Air Force, reacting to scheduled increases in Predator and Reaper combat air patrols, is planning to add personnel who process, exploit, and disseminate ISR data. The National Security Agency also has taken steps to address shortages in language analyst personnel. For example, to better target its hiring effort for language analysts the agency is using U.S. Census Bureau data to locate centers of populations that contain the language skills needed to translate and exploit the foreign languages that are collected. According to National Security Agency officials, these efforts have helped increase the number of language analysts available to process and exploit collected signals intelligence data. DOD is also working on developing technical solutions to improve processing, movement, and storage of data. For example, files from wide-area sensors have to be saved to a computer disk and flown back to the United States for exploitation and dissemination because current networks in the theater of operations cannot handle the large amounts of data these sensors collect. U.S. Joint Forces Command is currently designing and testing technology already in use by the commercial entertainment industry to improve storage, movement, and access to full motion video data from wide-area sensors. Although DOD has recognized the need for maximizing the efficiency and effectiveness of the information it collects and has been taking steps to increase information sharing across the defense intelligence community, progress has been uneven among the military services. DOD began plans for its Distributed Common Ground/Surface System (DCGS), an interoperable family of systems that will enable users to access shared ISR information, in 1998. DOD subsequently directed the military services to transition their service-unique intelligence data processing systems into DCGS and each of the military services is at a different stage. As shown in table 1, the Air Force and the Navy each plan to have a fully functional version of DCGS by the end of fiscal years 2010 and 2013, respectively, and the Army does not expect to have a fully functional system until 2016. The Marine Corps has not yet established a completion date for the full operational capability of its DCGS. DOD has developed a system of standards and protocols, called the DCGS Integration Backbone (DIB), which serves as the foundation for interoperability between each of the four military services’ DCGS programs. However, the services have not completed the process of prioritizing and tagging the data they want to share in accordance with these standards and protocols or developed timelines to do so. As a result, the services are not sharing all of their collected ISR data. Although the Air Force has the capability to share some Air Force- generated ISR information with other DOD users through the DIB standards and protocols, it has not developed timelines or taken steps to prioritize the types of additional data that should be shared with the defense intelligence community. The Army also has the capability to share some of its intelligence data with other users, but has experienced difficulties tagging all of its data because of its large inventory of legacy ISR systems. Moreover, the Army has not established timelines for sharing data. The Navy and Marine Corps are not currently tagging all of the ISR data they intend to share and have neither developed timelines nor taken steps to prioritize the types of data that should be shared with the defense intelligence community. The Under Secretary of Defense for Intelligence has responsibility for ensuring implementation of DOD intelligence policy, including monitoring the services’ progress toward interoperability. Although the services are responsible for managing their DCGS programs and conforming to information-sharing standards, according to Office of the Under Secretary of Defense for Intelligence and military service officials, DOD has not developed overarching guidance, such as a concept of operations that provides needed direction and priorities for sharing intelligence information within the defense intelligence community. Without this overarching guidance, the services lack direction to set their own goals and objectives for prioritizing and sharing ISR information and therefore have not developed service-specific implementation plans that describe the prioritization and types of ISR data they intend to share with the defense intelligence community. For example, a concept of operations could provide direction to the military services and defense agencies to select data to prioritize for meta-data tagging and sharing, such as electronic signals intelligence data. As a result, it is not clear how much of the collected data are not being shared. Until DOD identifies what types of ISR information should be shared and assigns priorities for sharing data, it is unclear whether mission-critical information will be available to the warfighter. In addition, the inability of users to fully access existing information in a timely manner is a contributing factor to the increasing demand for additional ISR collection assets. Therefore, in our January 2010 report, we recommended that the Secretary of Defense take the following two actions: Direct the Under Secretary of Defense for Intelligence, in coordination with the Chairman of the Joint Chiefs of Staff and the Secretaries of the Army, Navy, and Air Force, to develop guidance, such as a concept of operations that provides overarching direction and priorities for sharing intelligence information across the defense intelligence community. Direct the Secretaries of the Army, Navy, and Air Force to develop service-specific implementation plans, consistent with the concept of operations, which set timelines and outline the prioritization and types of ISR data they will share with the defense intelligence community through the DIB. In written comments on our report, DOD agreed with our recommendations overall and stated that there is guidance either issued or in development to address our recommendations. However, this guidance does not fully address the intent of our recommendations, and we believe additional guidance is necessary. DOD officials cite ISR as vital to mission success in Iraq and Afghanistan, and Congress has responded by funding additional ISR assets. However, until all participants in the defense enterprise successfully share ISR information, inefficiencies will hamper the effectiveness of efforts to support the warfighter, and ISR data collection efforts may be unnecessarily duplicative. While the focus of my testimony has been on the processing, exploiting, and disseminating of ISR data, our prior work has also shown that collection taskings are fragmented in theater and visibility into how ISR assets are being used is lacking. These challenges increase the risk that operational commanders may not be receiving mission-critical ISR information, which can create the perception that additional collection assets are needed to fill gaps. Mr. Chairmen and members of the subcommittees, this concludes my prepared statement. I would be happy to answer any questions that you may have at this time. For further information regarding this testimony, please contact Davi M. D’Agostino at (202) 512-5431 or dagostinod@gao.gov. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony are Margaret G. Morgan and Marc J. Schwartz, Assistant Directors; Grace A. Coleman; Gregory A. Marchand; Erika A. Prochaska; Kimberly C. Seay; and Walter K. Vance. In addition, Amy E. Brown; Amy D. Higgins; Timothy M. Persons; and Robert Robinson made significant contributions to the January 2010 report that supported this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The Department of Defense (DOD) has numerous intelligence, surveillance, and reconnaissance (ISR) systems--including manned and unmanned airborne, space-borne, maritime, and terrestrial systems--that play critical roles in support of current military operations. The demand for these capabilities has increased dramatically. Today's testimony addresses (1) the challenges the military services and defense agencies face processing, exploiting, and disseminating the information collected by ISR systems and (2) the extent to which the military services and defense agencies have developed the capabilities required to share ISR information. This testimony is based on GAO's January 2010 report on DOD's ISR data processing capabilities. GAO reviewed and analyzed documentation, guidance, and strategies of the military services and defense agencies in regard to processing, exploiting, and disseminating ISR data as well as information-sharing capabilities. GAO also visited numerous commands, military units, and locations in Iraq and the United States. The military services and defense agencies face long-standing challenges with processing, exploiting, and disseminating ISR data, and DOD has recently begun some initiatives to address these challenges. First, since 2002, DOD has rapidly increased its ability to collect ISR data in Iraq and Afghanistan, although its capacity for processing, exploiting, and dissemination is limited. Second, transmitting data from ISR collection platforms to ground stations where analysts process, exploit, and then disseminate intelligence to users requires high-capacity communications bandwidth. However, bandwidth can be limited in a theater of operations by the satellite and ground-based communication capacity, and this in turn affects the ability to send, receive, and download intelligence products that contain large amounts of data. Third, shortages of analytical staff with the required skill sets hamper the services' and defense agencies' abilities to exploit all ISR information being collected, thus raising the risk that important information may not be available to commanders in a timely manner. DOD is developing and implementing initiatives to enhance its processing, exploitation, and dissemination capabilities, such as increasing personnel, but its initiatives are in the early stages of implementation and it is too soon to tell how effective they will be in addressing current challenges. DOD is taking steps to improve the sharing of intelligence information across the department, but progress is uneven among the military services. DOD began plans for its Distributed Common Ground/Surface System (DCGS), an interoperable family of systems that will enable users to access shared ISR information in 1998. DOD subsequently directed the military services to transition their service-unique intelligence data processing systems into DCGS and each of the military services is at a different stage. While the Air Force and the Navy each plan to have a fully functional version of DCGS by the end of fiscal years 2010 and 2013, respectively, the Army does not expect to have a fully functional system until 2016. The Marine Corps has not yet established a completion date for the full operational capability of its DCGS. To facilitate the sharing of ISR data on this system, DOD developed the DCGS Integration Backbone, which provides common information standards and protocols. Although the services are responsible for managing their DCGS programs and conforming to information-sharing standards, according to the Office of the Under Secretary of Defense for Intelligence and military service officials, DOD has not developed overarching guidance, such as a concept of operations that provides direction and priorities for sharing intelligence information within the defense intelligence community. Without this overarching guidance, the services lack direction to set their own goals and objectives for prioritizing and sharing ISR information and therefore have not developed service-specific implementation plans that describe the prioritization and types of ISR data they intend to share. Moreover, the inability of users to fully access existing information contributes to the increasing demand for additional ISR collection assets.

During the three decades in which uranium was used in the government’s nuclear weapons and energy programs, for every ounce of uranium that was extracted from ore, 99 ounces of waste were produced in the form of mill tailings—a finely ground, sand-like material. By the time the government’s need for uranium peaked in the late 1960s, tons of mill tailings had been produced at the processing sites. After fulfilling their government contracts, many companies closed down their uranium mills and left large piles of tailings at the mill sites. Because the tailings were not disposed of properly, they were spread by wind, water, and human intervention, thus contaminating properties beyond the mill sites. In some communities, the tailings were used as building materials for homes, schools, office buildings, and roads because at the time the health risks were not commonly known. The tailings and waste liquids from processing uranium ore also contaminated the groundwater. Tailings from the ore processing resulted in radioactive contamination at about 50 sites (located mostly in the southwestern United States) and at 5,276 nearby properties. The most hazardous constituent of uranium mill tailings is radium. Radium produces radon, a radioactive gas whose decay products can cause lung cancer. The amount of radon released from a pile of tailings remains constant for about 80,000 years. Tailings also emit gamma radiation, which can increase the incidence of cancer and genetic risks. Other potentially hazardous substances in the tailings include arsenic, molybdenum, and selenium. DOE’s cleanup authority was established by the Uranium Mill Tailings Radiation Control Act of 1978. Title I of the act governs the cleanup of uranium ore processing sites that were already inactive at the time the legislation was passed. These 24 sites are referred to as Title I sites. Under the act, DOE is to clean up the Title I sites, as well as the nearby properties that were contaminated. In doing so, DOE works closely with the affected states and Indian tribes. DOE pays for most of this cleanup, but the affected states contribute 10 percent of the costs for remedial actions. Title II of the act covers the cleanup of sites that were still active when the act was passed. These 26 sites are referred to as Title II sites. Title II sites are cleaned up mostly at the expense of the private companies that own and operate them. They are then turned over to the federal government for long-term custody. Before a Title II site is turned over to the government, the Nuclear Regulatory Commission (NRC) works with the sites’ owners/operators to make sure that sufficient funds will be available to cover the costs of long-term monitoring and maintenance. The cleanup of surface contamination consists of four key steps: (1) identifying the type and extent of the contamination; (2) obtaining a disposal site; (3) developing an action plan, which describes the cleanup method and specifies the design requirements; and (4) carrying out the cleanup using the selected method. Generally, the primary cleanup method consists of enclosing the tailings in a disposal cell—a containment area that is covered with compacted clay to prevent the release of radon and then topped with rocks or vegetation. Similarly, the cleanup of groundwater contamination consists of identifying the type and extent of the contamination, developing an action plan, and carrying out the cleanup using the selected method. According to DOE, depending on the type and extent of the contamination, and the possible health risks, the appropriate method may be (1) leaving the groundwater as it is, (2) allowing it to cleanse itself over time (called natural flushing), or (3) using an active cleanup technique such as pumping the water out of the ground and treating it. Mr. Chairman, we now return to the topics discussed in our report: the status and cost of DOE’s surface and groundwater cleanup and the factors that could affect the federal government’s costs in the future. Since our report was issued on December 15, 1995, DOE has made additional progress in cleaning up and licensing Title I sites. As of April 1996, DOE’s surface cleanup was complete at 16 of the 24 Title I sites, under way at 6 additional sites, and on hold at the remaining 2 sites. Of the 16 sites where DOE has completed the cleanup, 4 have been licensed by NRC as meeting the standards of the Environmental Protection Agency (EPA). At 10 of the other 12 sites, DOE is working on obtaining such a license, and the remaining 2 sites do not require licensing because the tailings were relocated to other sites. Additionally, DOE has completed the surface cleanup at about 97 percent of the 5,276 nearby properties that were also contaminated. Although DOE expects to complete the surface cleanup of the Title I sites by the beginning of 1997, it does not expect all of NRC activities to be completed until the end of 1998. As for the cleanup of groundwater at the Title I sites, DOE began this task in 1991 and currently expects to complete it in about 2014. Since its inception in 1979, DOE’s project for cleaning up the Title I sites has grown in size and in cost. In 1982, DOE estimated that the cleanups would be completed in 7 years and that only one pile of tailings would need to be relocated. By 1992, however, the Department was estimating that the surface cleanup would be completed in 1998 and that 13 piles of tailings would need to be relocated. The project’s expansion was caused by several factors, including the development of EPA’s new groundwater protection standards; the establishment or revision of other federal standards addressing such things as the transport of the tailings and the safety of workers; and the unexpected discovery of additional tailings, both at the processing sites and at newly identified, affected properties nearby. In addition, DOE made changes in its cleanup strategies to respond to state and local concerns. For example, at the Grand Junction, Colorado, site, the county’s concern about safety led to the construction of railroad transfer facilities and the use of both rail cars and trucks to transport contaminated materials. The cheaper method of simply trucking the materials would have routed extensive truck traffic through heavily populated areas. Along with the project’s expansion came cost increases. In the early 1980s, DOE estimated that the total cleanup cost—for both the surface and groundwater—would be about $1.7 billion. By November 1995, this estimate had grown to $2.4 billion. DOE spent $2 billion on surface cleanup activities through fiscal year 1994 and expects to spend about $300 million more through 1998. As for groundwater, DOE has not started any cleanup. By June 1995, the Department had spent about $16.7 million on site characterization and various planning activities. To make the cleanup as cost-effective as it can, DOE is proposing to leave the groundwater as it is at 13 sites, allow the groundwater to cleanse itself over time at another 9 sites, and use an active cleanup method at 2 locations, in Monument Valley and Tuba City, Arizona. The final selection of cleanup strategies depends largely on DOE’s reaching agreement with the affected states and tribes. At this point, however, DOE has yet to finalize agreements on any of the groundwater cleanup strategies it is proposing. At the time we issued our report, the cleanups were projected to cost at least another $130 million using the proposed strategies, and perhaps as much as another $202 million. More recently, DOE has indicated that the Department could reduce these costs by shifting some of the larger costs to earlier years; reducing the amounts built into the strategies for contingencies, and using newer, performance-based contracting methods. Once all of the sites have been cleaned up, the federal government’s responsibilities, and the costs associated with them, will continue far into the future. What these future costs will amount to is currently unknown and will depend largely on how three issues are resolved. First, because the effort to clean up the groundwater is in its infancy, its final scope and cost will depend largely on the remediation methods chosen and the financial participation of the affected states. Since the time we issued our report, DOE has reported some progress in developing its groundwater cleanup plans. However, it is still too early to know whether the affected states or tribes will ultimately persuade DOE to implement more costly remedies than those the Department has proposed or whether any of the technical assumptions underlying DOE’s proposed strategies will prove to be invalid. If either of these outcomes occurs, DOE may implement more costly cleanup strategies, and thereby increase the final cost of the groundwater cleanup. In its fiscal year 1997 congressional budget request, DOE identified five sites where it believes it may have to implement more expensive alternatives than the ones it initially proposed. In addition, the final cost of the groundwater cleanup depends on the ability and willingness of the affected states to pay their share of the cleanup costs. According to DOE, several states may not have funding for the groundwater cleanup program. DOE believes that it is prohibited from cleaning up the contamination if the states do not pay their share. Accordingly, as we noted in our report, we believe that the Congress may want to consider whether and under what circumstances DOE can complete the cleanup of the sites if the states do not provide financial support. Second, DOE may incur further costs to dispose of uranium mill tailings that are unearthed in the future in the Grand Junction, Colorado, area. DOE has already cleaned up the Grand Junction processing site and over 4,000 nearby properties, at a cost of about $700 million. Nevertheless, in the past, about a million cubic yards of tailings were used in burying utility lines and constructing roads in the area and remain today under the utility corridors and road surfaces. In future years, utility and road repairs will likely unearth these tailings, resulting in a potential public health hazard if the tailings are mishandled. In response to this problem, DOE has worked with NRC and Colorado officials to develop a plan for temporarily storing the tailings as they are unearthed and periodically transporting them to a nearby disposal cell—referred to as the Cheney cell, located near the city of Grand Junction—for permanent disposal. Under this plan, the city or county would be responsible for hauling the tailings to the disposal cell, and DOE would be responsible for the cost of placing the tailings in the cell. The plan envisions that a portion of the Cheney disposal cell would remain open, at an annual cost of roughly $200,000. When the cell is full, or after a period of 20 to 25 years, it would be closed. However, DOE does not currently have the authority to implement this plan because the law requires that all disposal cells be closed upon the completion of the surface cleanup. Accordingly, we suggested in our report that the Congress might want to consider whether DOE should be authorized to keep a portion of the Cheney disposal cell open to dispose of tailings that are unearthed in the future in this area. Finally, DOE’s costs for long-term care are still somewhat uncertain. DOE will ultimately be responsible for the long-term custody, that is, the surveillance and maintenance, of both Title I and Title II sites, but the Department bears the financial responsibility for these activities only at Title I sites. For Title II sites, the owners/operators are responsible for funding the long-term surveillance and maintenance. Although NRC’s minimum one-time charge to site owners/operators is supposed to be sufficient to cover the cost of the long-term custody so that they, not the federal government, bear these costs in full, at the time we issued our December 1995 report, NRC had not reviewed its estimate of basic surveillance costs since 1980, and DOE was estimating that basic monitoring would cost about three times more than NRC had estimated. Since then, NRC and DOE have worked together to determine what level of basic monitoring should occur and how comprehensive the inspection reports should be. However, DOE still maintains that ongoing routine maintenance will be needed at all sites, while NRC’s charge does not provide any amount for ongoing maintenance. In light of the consequent potential shortfall in maintenance funds, our report recommended that NRC and DOE work together to update the charge for basic surveillance and determine whether routine maintenance will be required at each site. On the basis of our recommendations, NRC officials agreed to reexamine the charge and determine the need for routine maintenance at each site. They also said that they are working with DOE to clarify the Department’s role in determining the funding requirements for long-term custody. Mr. Chairman, this concludes our prepared statement. We will be pleased to answer any questions that you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

GAO discussed the status and cost of the Department of Energy's (DOE) uranium mill tailings cleanup program and the factors that could affect future costs. GAO noted that: (1) surface contamination cleanup has been completed at two-thirds of the identified sites and is underway at most of the others; (2) if DOE completes its surface cleanup program in 1998, it will have cost $2.3 billion, taken 8 years longer than expected, and be $621 million over budget; (3) DOE cleanup costs increased because there were more contaminated sites than originally anticipated, some sites were more contaminated than others, and changes were needed to respond to state and local concerns; (4) the future cost of the uranium mill tailings cleanup will largely depend on the future DOE role in the program, remediation methods used, and the willingness of states to share final cleanup costs; and (5) the Nuclear Regulatory Commission needs to ensure that enough funds are collected from the responsible parties to protect U.S. taxpayers from future cleanup costs.

CMS’s quality bonus payment demonstration includes several key changes from the quality bonus system established by PPACA. Specifically, PPACA required CMS to provide quality bonus payments to MA plans that achieve 4, 4.5, or 5 stars on a 5-star quality rating system developed by CMS. In contrast, the demonstration significantly increases the number of plans eligible for a bonus, enlarges the size of payments for some plans, and accelerates payment phase-in. In announcing the demonstration, CMS stated that the demonstration’s research goal is to test whether scaling bonus payments to the number of stars MA plans receive under the quality rating system leads to larger and faster annual quality improvement for plans at various star rating levels compared with what would have occurred under PPACA. In March 2012, we reported that CMS’s Office of the Actuary (OACT) estimated that the demonstration would cost $8.35 billion over 10 years— an amount that is at least seven times larger than that of any other Medicare demonstration conducted since 1995 and greater than the combined budgetary effect of all those demonstrations. The cost is largely for quality bonus payments more generous than those prescribed in PPACA. Plans are required to use these payments to provide their enrollees enhanced benefits, lower premiums, or reduced cost-sharing.We also found that the additional Medicare spending will mainly benefit average-performing plans—those receiving 3 and 3.5-star ratings—and that about 90 percent of MA enrollees in 2012 and 2013 would be in plans eligible for a bonus payment. As we noted in our report, while a reduction in MA payments was projected to occur as a result of PPACA’s payment reforms, OACT estimated that the demonstration would offset more than 70 percent of these payment reductions projected for 2012 alone and more than one-third of the reductions for 2012 through 2014. Our March 2012 report also identified several shortcomings of the demonstration’s design that preclude a credible evaluation of its effectiveness in achieving CMS’s stated research goal. Notably, the bonus payments are based largely on plan performance that predates the demonstration. In particular, all of the performance data used to determine the 2012 bonus payments and nearly all of the data used to determine the 2013 bonus payments were collected before the demonstration’s final specifications were published. In addition, under the demonstration’s design, the bonus percentages are not continuously scaled. For example, in 2014, plans with 4, 4.5, and 5 stars will all receive the same bonus percentage. Finally, since all plans may participate in the demonstration, there is no adequate comparison group for determining whether the demonstration’s bonus structure provided better incentives for improving quality than PPACA’s bonus structure. We therefore concluded that it is unlikely that the demonstration will produce meaningful results. Given the findings from our program review of the demonstration’s features, we recommended in our March 2012 report that the Secretary of Health and Human Services (HHS), who heads the agency of which CMS is a part, cancel the demonstration and allow the MA quality bonus payment system authorized by PPACA to take effect. We further recommended that if that bonus payment system does not adequately promote quality improvement, HHS should determine ways to modify it, which could include conducting an appropriately designed demonstration. HHS did not agree. It stated that, in contrast to PPACA, the demonstration establishes immediate incentives for quality improvement throughout the range of quality ratings. Regarding their proposed evaluation of the demonstration, HHS did not consider the timing of data collection to be a problem and said that the comparison group it would use would enable them to determine the demonstration’s impact. We continue to believe that, given the problems we cited, the demonstration should be canceled. In addition to our March 2012 report, we sent a letter on July 11, 2012, to HHS regarding CMS’s authority to conduct the demonstration. In our letter, we stated that CMS had not established that the demonstration met the criteria set forth in the Social Security Amendments of 1967, as amended—the statute under which CMS is conducting the demonstration. Specifically, the statute authorizes the Secretary to conduct demonstration projects to determine whether changes in payment methods would increase the efficiency and economy of Medicare services through the creation of additional incentives, without adversely affecting quality. However, features of the demonstration, particularly those regarding the timing of data collection for plan star ratings, call into question whether the demonstration includes additional incentives to increase the efficiency and economy of Medicare services and raise concerns about the agency’s ability to determine whether the payment changes under the demonstration result in increased efficiency and economy compared to the payment methods in place under PPACA. In 2003, Congress authorized the establishment of three types of MA coordinated care plans for individuals with special needs: dual-eligible special needs plans (D-SNP), which are exclusively for beneficiaries eligible for both Medicare and Medicaid; institutional special needs plans for individuals in nursing homes, and chronic condition special needs plans for individuals with severe or disabling chronic conditions. Of the three types of SNPs, D-SNPs are by far the most common, accounting for about 80 percent of SNP enrollment as of September 2012. The approximately 9 million dual-eligible beneficiaries are particularly costly to both Medicare and Medicaid in part because they are more likely than other Medicare beneficiaries to be disabled, report poor health status, and have limitations in activities of daily living. Furthermore, their care must be coordinated across Medicare and Medicaid, and each program has its own set of covered services and requirements. In September 2012, we reported that the 2012 D-SNP contracts with state Medicaid agencies that we reviewed varied considerably in their provisions for integration of benefits. Two-thirds of the 124 contracts between D-SNPs and state Medicaid agencies that were submitted to CMS for 2012 did not expressly provide for the integration of any benefits. To carry out the requirement in the Medicare Improvements for Patients and Providers Act of 2008 that each D-SNP contract provide or arrange CMS guidance required that, at a for Medicaid benefits to be provided,minimum, contracts list the Medicaid benefits that dual-eligible beneficiaries could receive directly from the state Medicaid agency or the state’s Medicaid managed care contractor(s). Like other MA plans, D-SNPs must cover all the benefits of fee-for- service, with the exception of hospice, and may offer supplemental benefits, such as vision and dental care. In addition, they must develop a model of care that describes their approach to caring for their enrollees. The model of care describes how the plan will address 11 elements, including tracking measureable goals, performing health risk assessments, providing care management for the most vulnerable beneficiaries, and measuring plan performance and outcomes; and D-SNPs must offer the benefits that allow them to actualize these elements. In our September 2012 report, we examined the supplemental benefits offered by D-SNPs and found that D-SNPs provided fewer supplemental benefits than other MA plans. However, the individual services covered under vision and dental benefits were generally more comprehensive than in other MA plans. Despite offering these supplemental benefits somewhat less often than other MA plans, D-SNPs allocated a larger percentage of their rebates—additional Medicare payments received by many plans—to these benefits than other MA plans. They were able to do so largely because they allocated a smaller percentage of rebates to reducing cost-sharing. We could not report on the extent to which benefits specific to D-SNPs and described in the model of care were actually provided to beneficiaries because CMS did not collect the information. For the 15 models of care we reviewed, most did not report—and were not required by CMS to report—the number of beneficiaries who received a risk assessment, for example, or the number or proportion of beneficiaries who would be targeted as “most vulnerable.” However, of the models of care we reviewed, past completion rates for risk assessment varied widely among the 4 plans that provided this information. None of the models of care we reviewed reported the number of beneficiaries that were expected to receive add-on services, such as social support services, that were intended for the most-vulnerable beneficiaries. We found that plans do not use standardized performance measures in their models of care, limiting the amount of comparable information available to CMS. Although the D-SNPs are required to report how they intend to evaluate their performance and measure outcomes, CMS does not stipulate the use of standard outcome or performance measures, making it difficult to use any data it might collect to compare D-SNPs’ effectiveness or evaluate how well they have done in meeting their goals. Furthermore, without standard measures, it would not be possible for CMS to fully evaluate the relative performance of D-SNPs. We concluded that there was little evidence available on how well D-SNPs are meeting their goals of helping dual-eligible beneficiaries to navigate two different health care systems and receive services that meet their individual needs. Consequently, we recommended in our September 2012 report that CMS require D-SNPs to state explicitly in their models of care the extent of services they expect to provide, require D-SNPs to collect and report to CMS standard performance and outcome measures, systematically analyze these data and make the results routinely available to the public, and conduct an evaluation of the extent to which D-SNPs have provided sufficient and appropriate care to their enrollees. HHS agreed with our recommendations and in its comments on a draft of our report, said that it plans to obtain more information from D-SNPs. CMS is embarking on a new demonstration in up to 26 states with as many as 2 million beneficiaries to financially realign Medicare and Medicaid services so as to serve dual-eligible beneficiaries more effectively. CMS has approved one state demonstration— Massachusetts—and continues to work with other states. If CMS systematically evaluates D-SNP performance, it can use information from the evaluation to inform the implementation and reporting requirements of this major new initiative. In contrast to MA plans, which have a financial incentive to control their costs, a small number of Medicare private health plans—called cost plans—are paid on the basis of their reasonable costs incurred delivering Medicare-covered services. Medicare cost plans also differ structurally from MA plans in several ways. For example, cost plans, unlike MA plans, allow beneficiaries to disenroll at any time. Despite their enrollment only totaling under 3 percent of Medicare private health plan enrollment, industry representatives stated that cost plans fill a unique niche by providing a Medicare private health plan option in rural and other areas that traditionally have had few or no MA plans. Under current law, new cost contracts are not being entered into and contracts with existing cost plans cannot be extended or renewed after January 1, 2013 if sufficient MA competition exists in the service area. Additionally, in general, organizations that offer cost plans and MA plans in the same area must close their cost plan to new enrollment. plan offerings by eliminating potentially duplicative plans and those with low enrollment. As part of our 2009 report on cost plans we also described the concerns of officials from Medicare cost plans about converting to MA plans. We found that the most-common concerns cited by these officials from organizations that offered Medicare cost plans were potential future changes to MA payments that may then necessitate closing the plan, difficulty assuming financial risk given their small enrollment, and potential disruption to beneficiaries during the transition. For future contacts regarding this testimony, please call James Cosgrove at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions include Phyllis Thorburn, Assistant Director; Alison Binkowski; Krister Friday; Gregory Giusto; and Eric Wedum. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

As of August 2012, approximately 13.6 million Medicare beneficiaries were enrolled in MA plans or Medicare cost plans—two private health plan alternatives to the original Medicare fee-for-service program. This testimony discusses work GAO has done that may help inform the Congress as it examines the status of the MA program and the private health plans that serve Medicare beneficiaries. It is based on key background and findings from three previously issued GAO reports on (1) the MA quality bonus payment demonstration, (2) D-SNPs, and (3) Medicare cost plans. This information on cost plans was updated, based on information supplied by CMS, to reflect the status of cost plans in March 2012. In March 2012, GAO issued a report on the Centers for Medicare & Medicaid Services’ (CMS) Medicare Advantage (MA) quality bonus payment demonstration—a demonstration CMS initiated rather than implementing the quality bonus program established under the Patient Protection and Affordable Care Act (PPACA). Compared to the PPACA quality bonus program, CMS’s demonstration increases the number of plans eligible for a bonus, enlarges the size of payments for some plans, and accelerates payment phase-in. CMS stated that the demonstration’s research goal is to test whether scaling bonus payments to quality scores MA plans receive increases the speed and degree of annual quality improvements for plans compared with what would have occurred under PPACA. GAO reported that CMS’s Office of the Actuary estimated that the demonstration would cost $8.35 billion over 10 years—an amount greater than the combined budgetary impact of all Medicare demonstrations conducted since 1995. In addition, GAO also found several shortcomings of the demonstration design that preclude a credible evaluation of its effectiveness in achieving CMS’s stated research goal. In July 2012, GAO sent a letter to the Secretary of Health and Human Services (HHS), the head of the agency of which CMS is a part, stating that CMS had not established that its demonstration met the criteria in the Social Security Act of 1967, as amended, under which the demonstration is being performed. In September 2012, GAO issued a report on Medicare dual-eligible special needs plans (D-SNP), a type of MA plan exclusively for beneficiaries that are eligible for Medicare and Medicaid. Dual-eligible beneficiaries are costly to Medicare and Medicaid in part because they are more likely than other beneficiaries to be disabled, report poor health status, and have limitations in activities of daily living. GAO found that two-thirds of 2012 D-SNP contracts with state Medicaid agencies that it reviewed did not expressly provide for the integration of Medicare and Medicaid benefits. Additionally, GAO found that compared to other MA plans, D-SNPs provided fewer, but more comprehensive supplemental benefits, such as vision, and were less likely to use rebates—additional Medicare payments received by many MA plans—for reducing beneficiary cost-sharing. GAO could not report on the extent to which benefits specific to D-SNPs were actually provided to beneficiaries because CMS did not collect the information. GAO also found that plans did not use standardized performance measures, limiting the amount of comparable information available to CMS. In December 2009, GAO issued a report on Medicare cost plans, which, unlike MA plans, are paid based on their reasonable costs incurred delivering Medicare-covered services and allow beneficiaries to disenroll at any time. GAO found that the approximately 288,000 Medicare beneficiaries enrolled in cost plans as of June 2009 had multiple MA options available to them. GAO updated this work using March 2012 data and found that enrollment in cost plans had increased to approximately 392,000 and that 99 percent of Medicare beneficiaries enrolled in cost plans had at least one MA option available to them, although generally fewer options than in 2009. In a March 2012 report on the MA quality bonus payment demonstration, GAO recommended that HHS cancel the MA quality bonus demonstration. HHS did not concur with this recommendation. In a September 2012 report on D-SNPs, GAO recommended that D-SNPs improve their reporting of services provided to beneficiaries and that this information be made public. HHS agreed with these recommendations.

SEC is an independent agency created to protect investors; maintain fair, honest, and efficient securities markets; and facilitate capital formation. SEC’s five-member Commission oversees SEC’s operations and provides final approval of SEC’s interpretation of federal securities laws, proposals for new or amended rules to govern securities markets, and enforcement activities. Enforcement staff located in headquarters and 11 regional offices conduct investigations through informal inquiries, interviews of witnesses, examination of brokerage records, reviews of trading data, and other methods. At the request of Enforcement staff, the Commission may issue a formal order of investigation, which allows the division’s staff to compel witnesses by subpoena to testify and produce books, records, and other documents. Following an investigation, SEC staff present their findings to the Commission for its review, recommending Commission action either in a federal court or before an administrative law judge. On finding that a defendant has violated securities laws, the court or the administrative law judge can issue a judgment ordering remedies, such as civil monetary penalties and disgorgement. In many cases, the Commission and the party charged decide to settle a matter without trial. In these instances, Enforcement staff negotiates settlements on behalf of the Commission. Total Enforcement staffing has declined 4.4 percent, from a peak of 1,169 positions in fiscal year 2005 to 1,117 positions in fiscal year 2008. While overall Enforcement resources and activities have remained relatively level in recent years, the number of non-supervisory investigative attorneys, who have primary responsibility for developing enforcement cases, decreased by 11.5 percent, from a peak of 566 in fiscal year 2004 to 501 in fiscal year 2008. Enforcement management attributed this greater decline to several factors: promotion of staff attorneys into management during a hiring freeze, which left their former positions vacant; diversion of investigative positions to other functions; and reduction of opportunities for non-attorney support staff to move to positions outside the agency. At the same time, staff turnover has decreased and staff tenure increased. The majority of Enforcement’s non-supervisory attorney workforce has 10 years of experience or less, but the distribution of experience in this category has reversed in recent years. The portion with less than 3 years of experience has declined by about 50 percent, and the portion with 3 to less than 10 years of experience has increased by about 55 percent. The portion with 10 to less than 15 years, while small overall, has grown by about 14 percent. Enforcement management welcomed these trends, but believed they resulted from a weaker private-sector job market for attorneys. They felt that had market conditions been better recently, departures would have been more numerous, which would have depressed the experience level. Measured by the number of enforcement cases opened and number of enforcement actions brought annually, Enforcement activity has been relatively level in recent years. Case backlog has declined somewhat as the division has made case closings a greater priority. Nevertheless, Enforcement management and investigative attorneys agreed that resource challenges have affected their ability to bring enforcement actions effectively and efficiently. Enforcement management told us that the current level of resources has not prevented the division from continuing to bring cases across a range of violations. But management and staff acknowledged that current staffing levels mean some worthwhile leads cannot be pursued, and some cases are closed without action earlier than they otherwise would have been. More specifically, investigative attorneys cited the low level of administrative, paralegal, and information technology support, unavailability of specialized services and expertise, and a burdensome system for internal case review as causing significant delays in bringing cases, reducing the number of cases that can be brought, and potentially undermining the quality of cases. Enforcement management concurred with the staff’s observations that resource challenges undercut enforcement efforts. Effective and efficient use of resources is important to accomplishing Enforcement’s mission. SEC’s strategic plan calls for targeting resources strategically, examining whether positions are deployed effectively, and exploring how to improve program design and organizational structure. Some attorneys with whom we spoke estimated that they spend as much as a third to 40 percent of their time on the internal review process. Recently, Enforcement management has begun efforts that seek to streamline the case review process. The initiative focuses on process, but our review suggests that organizational culture issues, such as risk aversion and incentives to drop cases or narrow their scope, are also present. If the division does not consider such issues in its initiative, it may not be as successful as it otherwise could be. Enforcement staff consider a number of factors when determining the dollar amounts of penalties and disgorgements, which in total have declined in recent years. To determine a penalty in an individual case, Enforcement staff consider factors such as the nature of the violation, egregiousness of conduct, cooperation by the defendant, remedial actions taken, and ability to pay. Disgorgement is intended to recover ill-gotten gains made, or losses avoided, through a defendant’s actions. In 2006 and 2007, the Commission articulated certain policies for determining the appropriateness and size of corporate penalties. The 2006 policy—which the Commission said was based in part on the legislative history of a 1990 act that provided SEC with civil penalty authority—established nine factors for evaluating imposition of corporate penalties, but said two were of primary importance: (1) direct benefit to the corporation and (2) additional harm to shareholders. The 2007 policy, now discontinued, required Enforcement staff, when contemplating a corporate penalty, to obtain Commission approval of a penalty range before settlement discussions could begin. Cases that subsequently were settled within the range specified by the Commission were eligible for approval on an expedited basis. At the same time the Commission provided the settlement range, it also granted Enforcement staff authority to sue. According to Enforcement staff and former commissioners with whom we spoke, and as stated by the then-Chairman, the purpose of the policy, also known as the “pilot program,” was to: provide earlier Commission involvement in the penalty process; strengthen Enforcement staff’s negotiating position; and maintain consistency, accountability, and due process. Setting aside the effect of the implementation of any policy, the total amount of penalties and disgorgement ordered on an annual basis can vary according to the type and magnitude of cases concluded in a given period. As shown in figure 1, since reaching peaks in fiscal years 2005 and 2006, total annual penalty and disgorgement amounts have declined. While both penalties and disgorgements fell in recent years, penalties have been declining at an accelerating rate, falling 39 percent in fiscal year 2006, another 48 percent in fiscal year 2007, and then 49 percent in fiscal year 2008. Also, penalties declined in the aggregate by a greater amount than disgorgements. In particular, penalties fell 84 percent, from a peak of $1.59 billion in fiscal year 2005 to $256 million in fiscal year 2008. Disgorgements fell 68 percent, from a peak of $2.4 billion in fiscal year 2006 to $774.2 million in fiscal year 2008. Compared to fiscal year 2006, SEC brought more corporate penalty cases in fiscal 2007, but for smaller amounts. In 2007, SEC brought 10 cases, compared to 6 in 2006. Four of the six cases in 2006 resulted in penalties of $50 million or more, with the two largest, American International Group, Inc. and Fannie Mae, totaling $100 million and $400 million, respectively. In contrast, in the fiscal year 2007 cases, only two issuers, MBIA, Inc., and Freddie Mac, were assessed penalties of at least $50 million. The distribution of enforcement actions by type of case generally has been consistent in recent years. Enforcement management said that the division has met its goal that a single category of cases not account for more than 40 percent of all actions. We found that Enforcement management, investigative attorneys, and others concurred that the 2006 and 2007 penalty policies, as applied, have delayed cases and produced fewer and smaller corporate penalties. On their face, the penalty policies are neutral, in that they neither encourage nor discourage corporate penalties. However, Enforcement management and many investigative attorneys and others said that Commission handling of cases under the policies both transmitted a message that corporate penalties were highly disfavored and caused there to be fewer and smaller corporate penalties. According to a number of Enforcement attorneys and division managers, investigative attorneys began avoiding recommendations for corporate penalties. For example, when the question of whether to seek a corporate penalty is a close one, the staff will default to avoiding the penalty. Or, if investigative staff decides to seek a penalty, they will change their focus from pursuing what they otherwise would recommend as most appropriate to tailoring recommendations to what they believe the Commission will find acceptable. According to many investigative attorneys, the penalty policies contributed to an adversarial relationship between Enforcement and the Commission, where some investigative attorneys came to see the Commission less as an ally and instead more as a barrier to bringing enforcement actions. Enforcement management told us they concurred with these observations about the effect of the application of the penalty policies. Although the Commission never directed there be fewer or smaller penalties, the officials said this has been the practical effect because Commission handling of cases made obtaining corporate penalties more difficult. Over time, the officials said they struggled with implementation and were unable to provide guidance to the staff, because they saw the Commission’s application of the penalty factors as inconsistent. Furthermore, the widely held view in Enforcement was that the unstated purpose of the 2006 policy was to scale back corporate penalties. Our review identified several other concerns voiced by Enforcement staff and others: That the policies have had the effect of making penalties less punitive in nature—by conditioning corporate penalties in large part on whether a corporation benefited from improper practices, penalties effectively become more like disgorgement. That the 2007 policy (Commission pre-approval of a settlement range) could have led to less-informed decisions about corporate penalties. That is, the Commission would decide on a penalty range in advance of settlement discussions, when settlement discussions themselves can reveal relevant information about the conduct of the wrongdoer. That the policies have reduced incentives for subjects of enforcement actions to cooperate with the agency, because of the perception that SEC has retreated on penalties. That it became more difficult to obtain formal orders of investigation, which allow issuance of subpoenas to compel testimony and produce books. Since fiscal year 2005, the number of formal orders approved by the Commission has decreased 14 percent. Our review also showed that in adopting and implementing the 2006 and 2007 corporate penalty policies, the Commission did not act in concert with agency strategic goals calling for broad communication with, and involvement of, the staff. In particular, Enforcement, which is responsible for implementing the policies, had only limited input into their development. According to Enforcement management, the broad Enforcement staff had no input into either policy. Senior division management did have input into the 2006 policy, but none into the 2007 policy. As a result, Enforcement attorneys say there has been frustration and uncertainty about application of the penalty policies. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or other members of the subcommittee might have. For further information on this testimony, please contact Orice M. Williams at (202) 512-8678 or williamso@gao.gov, or Richard J. Hillman at (202) 512-8678 or hillmanr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Karen Tremba, Assistant Director and Christopher Schmitt. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

In recent years, questions have been raised about the capacity of the Securities and Exchange Commission's (SEC) Division of Enforcement (Enforcement) to manage its resources and fulfill its law enforcement and investor protection responsibilities. This testimony focuses on (1) the extent to which Enforcement has an appropriate mix of resources; (2) considerations affecting penalty determinations, and recent trends in penalties and disgorgements ordered; and (3) the adoption, implementation, and effects of recent penalty policies. The testimony is based on the GAO report, Securities and Exchange Commission: Greater Attention Needed to Enhance Communication and Utilization of Resources in the Division of Enforcement ( GAO-09-358 , March 31, 2009). For this work, GAO analyzed information on resources, enforcement actions, and penalties; and interviewed current and former SEC officials and staff, and others. Recent overall Enforcement resources and activities have been relatively level, but the number of investigative attorneys decreased 11.5 percent over fiscal years 2004 and 2008. Enforcement management said resource levels have allowed them to continue to bring cases across a range of violations, but both management and staff said resource challenges have delayed cases, reduced the number of cases that can be brought, and potentially undermined the quality of some cases. Specifically, investigative attorneys cited the low level of administrative, paralegal, and information technology support, and unavailability of specialized services and expertise, as challenges to bringing actions. Also, Enforcement staff said a burdensome system for internal case review has slowed cases and created a risk-averse culture. SEC's strategic plan calls for targeting resources strategically, examining whether positions are deployed effectively, and improving program design and organizational structure. Enforcement management has begun examining ways to streamline case review, but the focus is process-oriented and does not give consideration to assessing organizational culture issues. A number of factors can affect the amount of a penalty or disgorgement that Enforcement staff seek in any individual enforcement action, such as nature of the violation, egregiousness of conduct, cooperation by the defendant, remedial actions taken, and ability to pay. In 2006, the Commission adopted a policy that focuses on two factors for determining corporate penalties: the economic benefit derived from wrongdoing and the effect a penalty might have on shareholders. In 2007, the Commission adopted a policy, now discontinued, that required Commission approval of penalty ranges before settlement discussions. Setting aside the effect of any policies, total penalty and disgorgement amounts can vary on an annual basis based on the mix of cases concluded in a particular period. Overall, penalties and disgorgements ordered have declined significantly since the 2005-2006 period. Total annual penalties fell 84 percent, from a peak of $1.59 billion in fiscal year 2005 to $256 million in fiscal year 2008. Disgorgements fell 68 percent, from a peak of $2.4 billion in fiscal year 2006 to $774.2 million in fiscal year 2008. Enforcement management, investigative attorneys, and others agreed that the two recent corporate penalty polices--on factors for imposing penalties, and Commission pre-approval of a settlement range--have delayed cases and produced fewer, smaller penalties. GAO also identified other concerns, including the perception that SEC had "retreated" on penalties, and made it more difficult for investigative staff to obtain "formal orders of investigation," which allow issuance of subpoenas for testimony and records. Our review also showed that in adopting and implementing the penalty policies, the Commission did not act in concert with agency strategic goals calling for broad communication with, and involvement of, the staff. In particular, Enforcement had limited input into the policies the division would be responsible for implementing. As a result, Enforcement attorneys reported frustration and uncertainty in application of the penalty policies.

The final medical privacy regulation requires that most providers obtain patient consent to use or disclose health information before engaging in treatment, payment, or health care operations. As defined in the regulation, health care operations include a variety of activities such as undertaking quality assessments and improvement initiatives, training future health care professionals, conducting medical reviews, and case management and care coordination programs. The consent form must alert patients to the provider’s notice of privacy practices (described in a separate document) and notify them of their right to request restrictions on the use and disclosure of their information for routine health care purposes. Providers are not required to treat patients who refuse to sign a consent form, nor are they required to agree to requested restrictions. The consent provision applies to all covered providers that have a direct treatment relationship with patients. The regulation also specifies several circumstances where such prior patient consent is not required. The privacy regulation does not require health plans to obtain written patient consent. This approach to patient consent for information disclosures differs from that in HHS’ proposed privacy regulation, issued for public comment November 3, 1999. The proposed regulation would have permitted providers to use and disclose information for treatment, payment, and health care operations without written consent. At the time, HHS stated that the existing consent process had not adequately informed patients of how their medical records could be used. Comments HHS received on this provision were mixed. Some groups approved of this approach, saying it would ensure that covered entities could share information to provide effective clinical care and operate efficiently, while not creating administrative requirements that would add little to individual privacy. However, others wrote that individuals should be able to control to whom, and under what circumstances, their individually identifiable health information would be disclosed, even for routine treatment, payment, or health care operations. The extent to which the privacy regulation’s consent requirement will be a departure from business as usual varies by type of provider. Under current practices, physicians and hospitals generally obtain consent to use patient data for processing insurance claims, but they obtain consent substantially less often for treatment or health care operations. Pharmacists, however, typically do not have consent procedures in place for any of the routine purposes included in the regulation. Specifically: Most, but not all, physicians get signed written consent to use patient data for health insurance payment. Exceptions to this practice include emergency situations and patients who choose to pay for their treatment “out of pocket” to avoid sharing sensitive information with an insurer. However, physicians do not typically seek approval to use patient data to carry out treatment or health care operations. Nearly all hospitals routinely obtain written consent at the time of admission, at least for release of information to insurance companies for payment purposes. A 1998 study of large hospitals found that 97 percent of patient consent forms sought release of information for payment, 50 percent addressed disclosure of records to other providers, and 45 percent requested consent for utilization review, peer review, quality assurance, or prospective review—the types of health care management activities considered health care operations in the federal privacy regulation. Pharmacies do not routinely obtain patient consent related to treatment (i.e., before filling a prescription), payment, or health care operations. However, industry representatives told us that pharmacies conducting disease management programs (specialized efforts to ensure appropriate pharmaceutical use by patients with certain chronic conditions) typically seek consent to share information with physicians about the patients’ condition, medical regimen, and progress. The new consent requirement makes several important changes to current practices that have implications for patients and providers. For patients, they will be made aware that their personal health information may be used or disclosed for a broad range of purposes including health care operations. Other provisions of the privacy regulation grant patients additional protections, including the right to access their records, to request that their records be amended, to obtain a history of disclosures, and to request restrictions on how their information is used. For providers directly treating patients, they will have a legal obligation to obtain prior written consent and to use a form that meets specific content requirements. Supporters of the consent requirement argue that the provision gives patients an opportunity to be actively involved in decisions about the use of their data. Yet, many groups recognize that signing a provider’s consent form does not, per se, better inform patients of how their information will be used or disclosed. In addition, most provider organizations we interviewed told us that the privacy regulation’s consent requirement will be a challenge to implement and may impede some health care operations. The American Medical Association (AMA), the Bazelon Center for Mental Health Law, and the Health Privacy Project (HPP) indicated that the consent process offers important benefits to patients. These groups view the process of signing a consent form as a critical tool in focusing patient attention on how personal health information is being used. They assert that only providing patients with a notice of privacy practices is not sufficient because most patients are not likely to understand its importance, much less read it. The patient advocacy groups told us that the act of signing the consent can help make patients aware of their ability to affect how their information is used. This heightened awareness, in turn, may make patients more likely to read the notice of privacy practices or to discuss privacy issues with their health care provider. HPP cited the process of signing consent as offering an “initial moment” in which patients have an opportunity to raise questions about privacy concerns and learn more about the options available to them. This opportunity may be especially valuable to patients seeking mental health and other sensitive health care services. In contrast, many groups we interviewed question the value of the consent form for patients. For example, the Medical Group Management Association (MGMA) and the American Hospital Association (AHA) assert that the process of signing a consent form may be perfunctory, at best, and confusing, at worst. To some extent, patient advocacy groups we spoke with agree. They say that patients will be under pressure to sign the form without reading the notice, as providers can condition treatment upon obtaining consent. They contend that many patients may not find the consent process meaningful. They maintain that nevertheless it should be required for the benefit it offers patients who may be particularly interested in having a say about how their health information will be used. Health plan and provider organizations we interviewed told us that the consent requirement poses implementation difficulties for patients and providers both during the regulation’s initial implementation and beyond. The extent of these challenges and their potential implications vary by type of provider. In general, these organizations do not favor written consents for routine uses of patient information, although they support the regulation’s requirement to provide patients with privacy notices. The consent requirement would require pharmacists to change their current practices. Under the regulation, a patient must sign a consent form before a pharmacist can begin filling the prescription. According to the American Pharmaceutical Association and the National Association of Chain Drug Stores, this requirement would result in delays and inconvenience for patients when they use a pharmacy for the first time.Also, pharmacies would not be able to use patient information currently in their systems to refill prescriptions or send out refill reminders before receiving patient consent to do so. In addition, patients who spent time in different parts of the country and were accustomed to transferring their prescriptions to out-of-state pharmacies would have to provide consent to one or more pharmacies before their prescriptions could be filled. Pharmacy and other organizations have suggested that the privacy regulation should recognize a physician-signed prescription as indicative of patient consent or that pharmacies could be considered indirect providers and thus not subject to the consent requirement. Hospital organizations also raised concern about disruption of current practice and some loss of efficiency. AHA and Allina Health System representatives stated that the consent requirement could impede the ability of hospitals to collect patient information prior to admission, thus creating administrative delays for hospitals and inconvenience for some patients. In advance of nonemergency admissions, hospitals often gather personal data needed for scheduling patient time in operating rooms, surgical staff assignments, and other hospital resources. If the regulation is interpreted to include such activities as part of treatment or health care operations, hospitals would be required to get the patient’s signed consent before setting the preadmissions process in motion. Either a form would have to be mailed or faxed to the patient and sent back, or the patient would have to travel to the hospital to sign it. Physician and hospital groups expressed concern that the requirement would hinder their ability to conduct health care management reviews using archived records. For example, AMA and AHA told us that the regulation will not permit them to use much of the patient data gathered under previous consent forms. While the regulation has a transition provision that allows providers to rely on consents acquired before the regulation takes effect, the continuing validity of those preexisting consents would be limited to the purposes specified on the consent form. In most cases, the purposes specified were either treatment or billing. This means that providers would not be able to draw on those data for other purposes, including common health care management functions, such as provider performance evaluations, outcome analyses, and other types of quality assessments. Moreover, they said that in many cases it might not be feasible to retroactively obtain consent from former patients. Some have suggested revising the regulation to allow providers to use, without consent, all health information created prior to the regulation’s effective date. All of the organizations representing providers and health plans anticipate an additional administrative burden associated with implementing the new consent procedures, but the magnitude of the potential burden is uncertain. For example, if the use of new forms elicits more questions from patients about medical records privacy, as the provision’s supporters expect will happen, providers will have to devote more staff time to explaining consent and discussing their information policies. Similarly, health plan and provider advocates contend that focusing patients’ attention on their right to request restrictions on how their information is used could result in many more patients seeking to exercise that right. This, some believe, would require increased staff time for considering, documenting, and tracking restrictions. The privacy regulation expands the scope of the consent process to include the use and disclosure of personal health information for a wide range of purposes. This may help some patients become aware of how their medical information may be used. However, in general, provider and health plan representatives believe that the consent requirement’s benefits are outweighed by its shortcomings, including delays in filling prescriptions, impediments to hospital preadmission procedures, and difficulty in using archived patient information. Regardless of the presence of the consent requirement, providers are obligated under the regulation to protect the confidentiality of patient information. Moreover, with or without the consent requirement, patients’ rights established by the privacy regulation—to see and amend their records, to learn of all authorized uses of their information, and to request restrictions on disclosures—remain unchanged. HHS provided written technical comments on a draft of this report. In them, HHS remarked on the consent requirement’s applicability to archived patient medical records. Agency officials explained that a consent for either treatment, payment, or health care operations acquired before the regulation’s compliance date would be valid for continued use or disclosure of those data for all three of these purposes after that date. Under this interpretation, for example, prior consents to disclose patient information for insurance claims would permit uses for the full range of health care operations as well, unless specifically excluded in the consent that the patient signed. In our view, a better understanding of the implications of this provision may emerge from any revisions to the final regulation. Referring to material in appendix I, the agency expressed concern that we overgeneralized current state consent laws, which have complex requirements and vary significantly from one to another. HHS pointed out that some state laws require written consent in some circumstances that would be considered treatment, payment, or health care operations. We recognize that state laws are complex and vary widely in the type of health care information that is protected and the stringency of those protections. While it is difficult to generalize about state laws, we found that the statutes in the 10 states we examined were fairly consistent in not requiring written consent for the full range of uses and disclosures of patient information for treatment, payment, and health care operations. The agency provided other technical comments that we incorporated where appropriate. We are sending copies of this report to the Honorable Tommy G. Thompson, Secretary of HHS, and others who are interested. We will also make copies available to others on request. If your or your staff have any questions, please call me at (312) 220-7600 or Rosamond Katz, Assistant Director, at (202) 512-7148. Other key contributors to this report were Jennifer Grover, Joel Hamilton, Eric Peterson, and Craig Winslow. To examine how state privacy laws address the issue of patient consent to use health information, we reviewed certain laws in 10 states (Hawaii, Maine, Maryland, Minnesota, Montana, Rhode Island, Texas, Virginia, Washington, and Wyoming). We found that none of these state privacy statutes include a consent requirement as broad as that found in the privacy regulation. Although they generally prohibit using or disclosing protected health information without the patient’s permission, they include significant exceptions not present in the federal regulation. Essentially, none of the state statutes we reviewed requires consent for the full range of uses and disclosures of patient information for treatment and health care operations. The Minnesota and Wyoming statutes require consent to use patient health information for payment purposes. Two states recently attempted to enhance patient control over their personal health information. In 1996, Minnesota enacted a law that placed stringent consent requirements on the use of patient data for research. It stipulated that patient records created since January 1, 1997, not be used for research without the patient’s written authorization. Because such authorization was not obtained at the start of treatment, researchers had to retroactively seek permission. They soon found that many patients did not respond to requests for such authorization, either to approve or to reject the use of their data. The law was amended to permit the use of records in cases where the patient had not responded to two requests for authorization mailed to the patient’s last known address. At one major research institution in Minnesota, the Mayo Clinic, that change decreased the percentage of patient records that the patient consent requirement made unavailable for studies from 20.7 percent to 3.2 percent. In late 1998, Maine enacted a comprehensive law requiring specific patient authorization for many types of disclosures and uses of health information. The law took effect January 1, 1999, but was soon suspended by the state legislature in response to numerous complaints from the public. Particularly problematic was that “hospital directory” information could not be released without the patient’s specific written authorization. Therefore, until routine paperwork was completed, hospitals could not disclose patients’ room or telephone numbers when friends, family, or clergy tried to contact or visit them. Based on this experience, the Maine legislature substantially modified the law, which became effective on February 1, 2000. Among other changes, the revised law allows a hospital to list current patients in a publicly available directory unless a patient specifically requests to be excluded.

The Department of Health and Human Services issued a final regulation in December 2000 that established rights for patients with respect to the use of their medical records. The regulation requires that most providers obtain patient consent to use or disclose health information before engaging in treatment, payment, or health care operations. The privacy regulation's consent requirement will be more of a departure from current practice for some providers than for others. Most health care providers, with the exception of pharmacists, obtain some type of consent from patients to release information to insurers for payment purposes. The new requirement obligates most providers to obtain consent before they can use and disclose patient information. It also broadens the scope of consent to include treatment and a range of health care management activities. Supporters of the requirement believe that the process of signing a consent form provides an opportunity to inform and focus patients on their privacy rights. Others, however, are skeptical and assert that most patients will simply sign the form with little thought. In addition, provider and other organizations interviewed are concerned that the new consent requirement poses implementation difficulties. They contend that it could cause delays in filling prescriptions for patients who do not have written consents on file with their pharmacies, impede the ability of hospitals to obtain patient information prior to admission, hamper efforts to assess health care quality by precluding the use of patient records from years past, and increase administrative burdens on providers.

EPA is required by the Clean Air Act to conduct reviews of the National Ambient Air Quality Standards (NAAQS) for the six criteria pollutants, including particulate matter, every 5 years to determine whether the current standards are sufficient to protect public health, with an adequate margin of safety. If EPA decides to revise the NAAQS, the agency proposes changes to the standards and estimates the costs and benefits expected from the revisions in an assessment called a regulatory impact analysis. In January 2006, EPA prepared a regulatory impact analysis for one such rule—particulate matter—that presented limited estimates of the costs and benefits expected to result from the proposed particulate matter rule. EPA developed the estimates by, for example, quantifying the changes in the number of deaths and illnesses in five urban areas that are likely to result from the proposed rule. The National Academies’ 2002 report examined how EPA estimates the health benefits of its proposed air regulations and emphasized the need for EPA to account for uncertainties and maintain transparency in the course of conducting benefit analyses. Identifying and accounting for uncertainties in these analyses can help decision makers evaluate the likelihood that certain regulatory decisions will achieve the estimated benefits. Transparency is important because it enables the public and relevant decision makers to see clearly how EPA arrived at its estimates and conclusions. Many of the recommendations include qualifying language indicating that it is reasonable to expect that they can be applied in stages, over time; moreover, a number of the recommendations are interrelated and, in some cases, overlapping. Soon after the National Academies issued its report, EPA roughly approximated the time and resource requirements to respond to the recommendations, identifying those the agency could address within 2 or 3 years and those that would take longer. According to EPA officials, the agency focused primarily on the numerous recommendations related to analyzing uncertainty. As is discussed below, EPA applied some of these recommendations to the particulate matter analysis. EPA applied—either wholly or in part—approximately two-thirds of the Academies’ recommendations in preparing its January 2006 particulate matter regulatory impact analysis and continues to address the recommendations through ongoing research and development. According to EPA, the agency intends to address some of the remaining recommendations in the final rule and has undertaken research and development to address others. The January 2006 regulatory impact analysis on particulate matter represents a snapshot of an ongoing EPA effort to respond to the National Academies’ recommendations on developing estimates of health benefits for air pollution regulations. Specifically, the agency applied, at least in part, approximately two-thirds of the recommendations—8 were applied and 14 were partially applied—by taking steps toward conducting a more rigorous assessment of uncertainty by, for example, evaluating the different assumptions about the link between human exposure to particulate matter and health effects and discussing sources of uncertainty not included in the benefit estimates. According to EPA officials, the agency focused much of its time and resources on the recommendations related to uncertainty. In particular, one overarching recommendation suggests that EPA take steps toward conducting a formal, comprehensive uncertainty analysis—the systematic application of mathematical techniques, such as Monte Carlo simulation—and include the uncertainty analysis in the regulatory impact analysis to provide a “more realistic depiction of the overall uncertainty” in EPA’s estimates of the benefits. Overall, the uncertainty recommendations call for EPA to determine (1) which sources of uncertainties have the greatest effect on benefit estimates and (2) the degree to which the uncertainties affect the estimates by specifying a range of estimates and the likelihood of attaining them. In response, EPA examined a key source of uncertainty—its assumption about the causal link between exposure to particulate matter and premature death—and presented a range of expected reductions in death rates. EPA based these ranges on expert opinion systematically gathered in a multiphased pilot project. The agency did not, however, incorporate these ranges into its benefit estimates as the National Academies had recommended. Moreover, the Academies recommended that EPA’s benefit analysis reflect how the benefit estimates would vary in light of multiple uncertainties. In addition to the uncertainty underlying the causal link between exposure and premature death, other key uncertainties can influence the estimates. For example, there is uncertainty about the effects of the age and health status of people exposed to particulate matter, the varying composition of particulate matter, and the measurements of actual exposure to particulate matter. EPA’s health benefit analysis, however, does not account for these key uncertainties by specifying a range of estimates and the likelihood of attaining them. For these reasons, EPA’s responses reflect a partial application of the Academies’ recommendation. In addition, the Academies recommended that EPA both continue to conduct sensitivity analyses on sources of uncertainty and expand these analyses. In the particulate matter regulatory impact analysis, EPA included a new sensitivity analysis regarding assumptions about thresholds, or levels below which those exposed to particulate matter are not at risk of experiencing harmful effects. EPA has assumed no threshold level exists—that is, any exposure poses potential health risks. Some experts have suggested that different thresholds may exist, and the National Academies recommended that EPA determine how changing its assumption—that no threshold exists—would influence the estimates. The sensitivity analysis EPA provided in the regulatory impact analysis examined how its estimates of expected health benefits would change assuming varying thresholds. In response to another recommendation by the National Academies, EPA identified some of the sources of uncertainty that are not reflected in its benefit estimates. For example, EPA’s regulatory impact analysis disclosed that its benefit estimates do not reflect the uncertainty associated with future year projections of particulate matter emissions. EPA presented a qualitative description about emissions uncertainty, elaborating on technical reasons—such as the limited information about the effectiveness of particulate matter control programs—why the analysis likely underestimates future emissions levels. EPA did not apply the remaining 12 recommendations to the analysis for various reasons. Agency officials viewed most of these recommendations as relevant to its health benefit analyses and, citing the need for additional research and development, emphasized the agency’s commitment to continue to respond to the recommendations. EPA has undertaken research and development to respond to some of these recommendations but, according to agency officials, did not apply them to the analysis because the agency had not made sufficient progress. For example, EPA is in the process of responding to a recommendation involving the relative toxicity of components of particulate matter, an emerging area of research that has the potential to influence EPA’s regulatory decisions in the future. Hypothetically, the agency could refine national air quality standards to address the potentially varying health consequences associated with different components of particulate matter. The National Academies recommended that EPA strengthen its benefit analyses by evaluating a range of alternative assumptions regarding relative toxicity and incorporate these assumptions into sensitivity or uncertainty analyses as more data become available. EPA did not believe the state of scientific knowledge on relative toxicity was sufficiently developed at the time it prepared the draft regulatory impact analysis to include this kind of analysis. In a separate report issued in 2004, the National Academies noted that technical challenges have impeded research progress on relative toxicity but nonetheless identified this issue as a priority research topic. The Clean Air Scientific Advisory Committee also noted the need for more research and concluded in 2005 that not enough data are available to base the particulate matter standards on composition. The Office of Management and Budget, however, encouraged EPA in 2006 to conduct a sensitivity analysis on relative toxicity and referred the agency to a sensitivity analysis on relative toxicity funded by the European Commission. We found that EPA is sponsoring research on the relative toxicity of particulate matter components. For example, EPA is supporting long-term research on this issue through its intramural research program and is also funding research through its five Particulate Matter Research Centers and the Health Effects Institute. In addition, an EPA contractor has begun to investigate methods for conducting a formal analysis that would consider sources of uncertainty, including relative toxicity. To date, the contractor has created a model to assess whether and how much these sources of uncertainty may affect benefit estimates in one urban area. Agency officials told us, however, that this work was not sufficiently developed to include in the final particulate matter analysis, which it says will present benefits on a national scale. Another recommendation that EPA did not apply to the particulate matter analysis focused on assessing the uncertainty of particulate matter emissions. The National Academies recommended that EPA conduct a formal analysis to characterize the uncertainty of its emissions estimates, which serve as the basis for its benefit estimates. While the agency is investigating ways to assess or characterize this uncertainty, EPA did not conduct a formal uncertainty analysis for particulate matter emissions for the draft regulatory impact analysis because of data limitations. These limitations stem largely from the source of emissions data, the National Emissions Inventory—an amalgamation of data from a variety of entities, including state and local air agencies, tribes, and industry. According to EPA, these entities use different methods to collect data, which have different implications for how to characterize the uncertainty. EPA officials stated that the agency needs much more time to address this data limitation and to resolve other technical challenges of such an analysis. While the final particulate matter analysis will not include a formal assessment of uncertainty about emissions levels, EPA officials noted that the final analysis will demonstrate steps toward this recommendation by presenting emissions data according to the level emitted by the different kinds of sources, such as utilities, cars, and trucks. Finally, EPA did not apply a recommendation concerning the transparency of its benefit estimation process to the particulate matter analysis. Specifically, the National Academies recommended that EPA clearly summarize the key elements of the benefit analysis in an executive summary that includes a table that lists and briefly describes the regulatory options for which EPA estimated the benefits, the assumptions that had a substantial impact on the benefit estimates, and the health benefits evaluated. EPA did not, however, present a summary table as called for by the recommendation or summarize the benefits in the executive summary. EPA stated in the regulatory impact analysis that the agency decided not to present the benefit estimates in the executive summary because they were too uncertain. Agency officials told us that the agency could not resolve some significant data limitations before issuing the draft regulatory impact analysis in January 2006 but that EPA has resolved some of these data challenges. For example, EPA officials said they have obtained more robust data on anticipated strategies for reducing emissions, which will affect the estimates of benefits. The officials also said that EPA intends to include in the executive summary of the regulatory impact analysis supporting the final rule a summary table that describes key analytical information. While EPA officials said that the final regulatory impact analysis on particulate matter will reflect further responsiveness to the Academies’ recommendations, continued commitment and dedication of resources will be needed if EPA is to fully implement the improvements recommended by the National Academies. In particular, the agency will need to ensure that it allocates resources to needed research on emerging issues, such as the relative toxicity of particulate matter components, and to assessing which sources of uncertainty have the greatest influence on benefit estimates. The uncertainty of the agency’s estimates of health benefits in the draft regulatory impact analysis for particulate matter underscores the importance of uncertainty analysis that can enable decision makers and the public to better evaluate the basis for EPA’s air regulations. While EPA officials said they expect to reduce the uncertainties associated with the health benefit estimates in the final particulate matter analysis, a robust uncertainty analysis of the remaining uncertainties will nonetheless be important for decision makers and the public to understand the likelihood of attaining the estimated health benefits. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or other Members of the Committee may have. For further information about this testimony, please contact me at (202) 512-3841 or stephensonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Christine Fishkin, Assistant Director; Kate Cardamone; Nancy Crothers; Cindy Gilbert; Tim Guinane; Karen Keegan; Jessica Lemke; and Meaghan K. Marshall. 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Scientific evidence links exposure to particulate matter--a widespread form of air pollution--to serious health problems, including asthma and premature death. Under the Clean Air Act, the Environmental Protection Agency (EPA) periodically reviews the appropriate air quality level at which to set national standards to protect the public against the health effects of six pollutants, including particulate matter. EPA proposed revisions to the particulate matter standards in January 2006 and issued a regulatory impact analysis of the revisions' expected costs and benefits. The estimated benefits of air pollution regulations have been controversial in the past, and a 2002 National Academies report to EPA made recommendations aimed at improving the estimates for particulate matter and other air pollution regulations. This testimony is based on GAO's July 2006 report Particulate Matter: EPA Has Started to Address the National Academies' Recommendations on Estimating Health Benefits, but More Progress Is Needed (GAO-06-780). GAO determined whether and how EPA applied the National Academies' recommendations in its estimates of the health benefits expected from the January 2006 proposed revisions to the particulate matter standards. While the National Academies' report generally supported EPA's approach to estimating the health benefits of its proposed air pollution regulations, it included 34 recommendations for improvements. EPA has begun to change the way it conducts and presents its analyses of health benefits in response to the National Academies' recommendations. For its particulate matter health benefit analysis, EPA applied, at least in part, about two-thirds of the Academies' recommendations. Specifically, EPA applied 8 and partially applied 14. For example, in response to the Academies' recommendations, EPA evaluated how benefits might change given alternative assumptions and discussed sources of uncertainty not included in the benefit estimates. Although EPA applied an alternative technique for evaluating one key uncertainty--the causal link between exposure to particulate matter and premature death--the health benefit analysis did not assess how the benefit estimates would vary in light of other key uncertainties, as the Academies had recommended. Consequently, EPA's response represents a partial application of the recommendation. Agency officials said that ongoing research and development efforts will allow EPA to gradually make more progress in applying this and other recommendations to future analyses. EPA did not apply the remaining 12 recommendations to the analysis, such as the recommendation to evaluate the impact of using the assumption that the components of particulate matter are equally toxic. EPA officials viewed most of these 12 recommendations as relevant to the health benefit analyses but noted that the agency was not ready to apply specific recommendations because of, among other things, the need to overcome technical challenges stemming from limitations in the state of available science. For example, EPA did not believe that the state of scientific knowledge on the relative toxicity of particulate matter components was sufficiently developed to include it in the January 2006 regulatory impact analysis. The agency is sponsoring research on this issue. We note that continued commitment and dedication of resources will be needed if EPA is to fully implement the improvements recommended by the National Academies. In particular, the agency will need to ensure that it allocates resources to needed research on emerging issues, such as the relative toxicity of particulate matter components, and to assessing which sources of uncertainty have the greatest influence on benefit estimates. While EPA officials said they expect to reduce the uncertainties associated with the health benefit estimates in the final particulate matter analysis, a robust uncertainty analysis of the remaining uncertainties will nonetheless be important for decision makers and the public to understand the likelihood of attaining the estimated health benefits.

OPS administers the national regulatory program to ensure the safe operation of nearly 2.2 million miles of natural gas and hazardous liquid pipelines in the United States. The agency develops, issues, and enforces pipeline safety regulations. These regulations contain minimum safety standards that the pipeline companies that transport natural gas or hazardous liquids must meet for the design, construction, inspection, testing, operation, and maintenance of their pipelines. In general, OPS retains full responsibility for inspecting pipelines and enforcing regulations on interstate pipelines, and certifies states to perform these functions for intrastate pipelines. In fiscal year 2000, OPS employed 97 people, 55 of whom were pipeline inspectors. Several federal statutes enacted since 1988 contain requirements designed to improve pipeline safety and enhance OPS’ ability to oversee the pipeline industry. In addition, the Safety Board makes recommendations designed to improve transportation safety to OPS and other federal agencies. These recommendations are based on the Safety Board’s investigations of transportation accidents, including significant pipeline accidents (such as those involving fatalities). Many of these recommendations address the same issues as the statutory requirements. OPS has made progress in implementing some of the 22 statutory requirements that it reported as open in our May 2000 report but has not fully implemented some significant, long-standing requirements. As of September 1, 2001, 6 of the 22 requirements have been closed as a result of OPS’ actions, 11 requirements are still open, and the remaining 5 have been closed because OPS now considers them to be superseded by or amendments to other requirements or because the agency does not believe it is required to take further action. The agency has fully implemented 6 of the 22 statutory requirements that it classified as open in May 2000. (See table 1.) Three of these six requirements were implemented in the last 16 months; OPS issued a final rule to define underwater abandoned pipeline facilities that present a hazard to navigation and specify how operators shall report these facilities, issued a report on its Risk Management Demonstration Program, and conducted activities to address population encroachment near pipelines. OPS had completed action on the other three requirements prior to May 2000, but did not report these actions to us at that time. (Appendix I provides the status of OPS’ actions to implement all 22 requirements as of September 1, 2001.) As of September 1, 2001, 11 requirements—including several from 1992 or earlier that could significantly improve pipeline safety—remain uncompleted. While OPS has made some progress on these requirements over the last year, the agency estimates that it will take from several months to more than a year to complete actions on them. For example, OPS is issuing a series of rules requiring pipeline operators to develop an integrity management program to assess and improve, where necessary, the safety of pipeline segments in areas where the consequences of a pipeline failure could be significant (called “high consequence areas.”) This series represents a broad-based, comprehensive effort designed to improve pipeline safety, as well as fulfill several specific statutory requirements such as requirements to inspect pipelines periodically and install valves to shut off the flow of product in the pipeline if a failure occurs. In December 2000, OPS issued a final integrity management rule for hazardous liquid pipelines that are at least 500 miles long. OPS still needs to issue similar integrity management rules for hazardous liquid pipelines that are less than 500 miles long, expected in late fall 2001, and for natural gas transmission pipelines. The agency expects to issue a proposed rule for transmission pipelines by the end of 2001 and a final rule in fall 2002. To facilitate the natural gas transmission rule, OPS officials have been meeting with representatives of the pipeline industry, research institutions, state pipeline safety agencies, and public interest groups to understand how integrity management principles can best be applied to improve the safety of gas pipelines. OPS also requested information and clarification in June 2001 and plans to hold a public meeting with its Natural Gas Technical Advisory Committee on this subject. According to OPS officials, they are close to reaching consensus with the pipeline industry and state agencies on safety standards for natural gas transmission pipelines. In addition, in response to a 1988 requirement to establish standards to complete and maintain a pipeline inventory, OPS is establishing multiple methods of collecting this information, such as annual reports, the integrity management process, and a national pipeline mapping system.According to OPS officials, they are collecting the necessary information for hazardous liquid and gas transmission pipelines, but still need to establish methods to collect additional information for gas distribution pipelines. OPS does not plan to complete forms that will allow it to collect such information until spring 2002—more than 13 years after the original requirement. Finally, in response to a 1992 requirement to define “gathering line” and “regulated gathering line,” OPS is still conducting studies to identify which lines should be regulated. OPS does not plan to issue a final rule before mid-2002. OPS officials estimate that it will take a year or more to implement 10 of the 11 open requirements. OPS does not plan to take action on the remaining open requirement to submit a report on underwater abandoned pipeline facilities, including a survey of where such facilities are located and an analysis of any safety hazards associated with them. According to OPS officials, the agency did not complete the report because there were insufficient data available, and it would be expensive to develop the needed data. OPS officials said they have analyzed to the extent possible all available data, and they do not plan to proceed further. We did not determine whether sufficient data exist or the cost to develop data to complete the report. OPS has closed the remaining five requirements that it reported as open in May 2000 because it now considers them to be superseded by or amendments to other requirements or because OPS believes it is no longer required to take action. Although OPS did not fulfill these requirements, we agree with OPS’ rationale for considering them closed. OPS closed one requirement because it was replaced by a later requirement. A 1988 statute required OPS to establish standards requiring that new and replacement pipelines accommodate the passage of “smart pigs”—mechanical devices that can travel through the pipeline to record flaws in the pipeline, such as dents or corrosion. Although OPS did not meet this requirement, the agency considers it closed because it was superseded by a similar requirement in a 1996 statute, which has not been completed. OPS closed three requirements from a 1996 statute that amended requirements from a 1992 statute that have not been completed: (1) defining “gathering lines” and “regulated gathering lines,” (2) requiring the periodic inspection of pipelines in high-density and environmentally sensitive areas, and (3) establishing criteria to identify all pipeline facilities located in areas that are densely populated and/or environmentally sensitive. In general, the amending provisions gave OPS more flexibility in fulfilling the requirements by adding language such as “where appropriate” or “if needed.” Although OPS considered these actions as open in our May 2000 report, OPS now believes that since these three provisions do not impose additional requirements they should not continue to be counted separately. OPS closed one requirement because it is no longer required to take action. A 1996 statute required OPS to issue biennial reports to the Congress on how the agency carried out its pipeline safety responsibilities for the preceding two calendar years. OPS issued the first report in August 1997 but did not issue a report in 1999. This reporting requirement was eliminated as of May 15, 2000, under the Federal Reports Elimination and Sunset Act of 1995, as amended. The Safety Board is encouraged by OPS’ recent efforts to improve its responsiveness, but it remains concerned about the amount of time OPS has been taking to implement recommendations. The Director of the Safety Board’s Office of Pipeline Investigations views OPS’ responsiveness as generally improving because OPS has recently initiated several activities to respond to recommendations and made efforts to communicate better with the Safety Board. To improve communications with the Safety Board, OPS has changed how it informs the Safety Board of progress made on recommendations by corresponding with the Safety Board as progress occurs on individual recommendations, rather than providing periodic updates that may cover a number of recommendations. While the Safety Board is encouraged by OPS’ recent efforts, it is reserving final judgment on OPS’ progress until the agency demonstrates that it can follow through with actions to fully implement the recommendations. OPS continues to have the lowest rate of any transportation agency for implementing recommendations from the Safety Board; and, in May 2000 we reported that the Safety Board was concerned that OPS had not followed through on promises to implement recommendations. According to the Director of the Safety Board’s Office of Pipeline Investigations, the Safety Board continues to be concerned about the amount of time OPS is taking to follow through with the recommendations. For example, the Safety Board initially recommended in 1987 that OPS require pipeline operators to periodically inspect pipelines. OPS is responding to this recommendation through its series of rules on integrity management that is expected to be completed in 2002—15 years after the Safety Board made the initial recommendation. According to the Safety Board’s records, OPS has completed action on only 1 of the 39 Safety Board recommendations that were open as of May 2000. Since then, the Safety Board has made 6 additional recommendations, resulting in 44 open recommendations on pipeline safety as of September 1, 2001. However, OPS officials believe that the agency’s progress is much greater than the Safety Board’s records indicate. The majority of the recommendations are related to damage prevention (damage from outside forces is the leading cause of pipeline accidents) and integrity management; OPS is in the process of implementing several broad-based, complementary efforts in these areas. According to OPS officials, the agency will have fulfilled 19 of the open recommendations by the end of 2001 and expects to complete action on 16 additional recommendations by the end of 2002. OPS has made some progress in implementing statutory requirements over the past 16 months and expects to implement most of the remaining requirements in the next year or so. OPS also believes that it will have completed action on most of the 44 open Safety Board recommendations over this same time period. Ultimately, however, it is the Safety Board’s decision on whether OPS’ actions fulfill the recommendations. While this progress represents an improvement over OPS’ previous performance, the agency has not fully implemented some important requirements and recommendations to improve pipeline safety that were imposed more than 10 years ago. The next 15 months are important to OPS because, among other actions, the agency intends to complete its series of integrity management rules within this time frame. These rules are expected to improve the safety of pipelines and allow OPS to fulfill a large portion of the outstanding statutory requirements and Safety Board recommendations. We are concerned that OPS does not plan to take action in response to the 1992 statutory requirement to report to the Congress on underwater abandoned pipeline facilities. While we did not assess OPS’ claims that it is not feasible to complete the report due to insufficient data and funding, OPS has made no response to this requirement, including advising the Congress that it is not possible to complete the study. If the department believes that it cannot complete a report to the Congress on underwater abandoned pipeline facilities, we recommend that the Secretary of Transportation direct OPS to advise the Congress of the reasons why it is unable to complete this study and, if appropriate, ask the Congress to relieve it of this responsibility. We provided a draft of this report to the Department of Transportation for its review and comment. We met with officials from the department, including OPS’ Associate Administrator, to obtain their comments. The officials generally agreed with the draft report and its recommendation. The officials stated that OPS is taking a long-term, strategic approach to address safety goals by improving pipeline integrity and preventing damage to pipelines. According to the officials, this approach is more beneficial than responding directly to individual requirements and recommendations as discrete actions. For example, OPS’ integrity management rules will require pipeline operators to comprehensively evaluate and respond to the entire range of risks to pipelines; the rules will include, but are not limited to, safety practices that have been required by the Congress or recommended by the Safety Board, such as internal inspections and safety valves. The officials stated that OPS has undertaken several broad-based, complementary efforts, particularly focused on pipeline integrity and damage prevention that, when completed, are expected to improve pipeline safety and fulfill many specific statutory requirements and Safety Board recommendations. They said that such a process requires OPS—working cooperatively with state and local officials and the pipeline industry—to thoroughly explore the safety risks faced by different types of pipelines, devise solutions that work for each unique pipeline, and carefully assess the costs and expected benefits of various methods of mitigating risks. The officials expect that, within a year, the results of these efforts will become apparent to the Congress and the public. In response to OPS’ comments, we provided more detailed information on specific actions OPS has taken to improve pipeline safety, where appropriate. To determine OPS’ progress in responding to statutory requirements, we asked OPS officials to identify actions the agency has taken to respond to requirements. We then collected and reviewed documentation on these actions, such as published rules and reports. To determine OPS’ progress in responding to recommendations from the Safety Board, we collected and analyzed information from the Safety Board on the status of pipeline safety recommendations. We also interviewed the Safety Board’s Director of the Office of Railroad, Pipeline, and Hazardous Materials Investigations to discuss OPS’ progress in responding to the Safety Board’s recommendations. Consistent with the approach used for our May 2000 report, we relied on OPS and the Safety Board to identify which actions were open and did not attempt to determine whether these open actions were, in actuality, completed. In addition, we did not assess the adequacy of OPS’ responses to statutory requirements or the Safety Board’s recommendations. We performed our work from July through September 2001 in accordance with generally accepted government auditing standards. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 7 days after the date of this letter. At that time, we will send copies of this report to congressional committees and subcommittees with responsibilities for transportation safety issues, the Secretary of Transportation, the Administrator of the Research and Special Programs Administration, the Director of the Office of Management and Budget, and the Acting Chairman of the National Transportation Safety Board. We will make copies available to others upon request and on our home page at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or guerrerop@gao.gov. Key contributors to this report were Helen Desaulniers, Judy Guilliams-Tapia, James Ratzenberger, and Sara Vermillion. Appendix I: OPS’ Actions on Pipeline Safety Statutory Requirements Reported as Open in May 2000 (As of September 1, 2001) Citations included in table 5 are to the United States Code and to the Accountable Pipeline Safety and Partnership Act of 1996.

In a May 2000 report on the performance of the Department of Transportation's Office of Pipeline Safety (OPS), GAO found that the number of pipeline accidents rose four percent annually from 1989 to 1998--from 190 in 1989 to 280 in 1998. GAO also found that OPS did not implement 22 statutory requirements and 39 recommendations made by the National Transportation Safety Board. Since GAO's May report, OPS has fully implemented six of the 22 statutory requirements. However, 11 other requirements--including some that are significant and long-standing--have not been fully implemented. The agency does not plan to report on abandoned underwater pipeline facilities--a remaining open requirement--because it believes that insufficient data exists to conduct the study. The Safety Board is encouraged by OPS' recent efforts to improve its responsiveness, but the Board remains concerned about the amount of time OPS has taken to implement recommendations. OPS has the lowest rate of any transportation agency in implementing the Board's recommendations.

Historically, the Congress has limited VA’s authority to provide medical care to veterans, expanding it in a careful and deliberate manner. Although VA’s authority has increased significantly over the years, important limitations have not been recognized by VA in establishing and operating new access points. At the access points we visited, many veterans receive primary care contrary to applicable statutory limitations and priorities on their eligibility for such services. As authority for operating contract access points, VA relies on a statute (38 U.S.C. 8153) that permits it to enter into agreements “for the mutual use, or exchange of use, of specialized medical resources when such an agreement will obviate the need for a similar resource to be provided” in a VA facility. Specialized medical resources are equipment, space, or personnel that—because of cost, limited availability, or unusual nature—are unique in the medical community. VA officials assert that primary care provided at access points is a specialized medical resource because its limited availability to veterans in areas where VA facilities are geographically inaccessible (or inconvenient) makes it unique. One significant aspect of VA’s reliance on this authority is that it effectively broadens the eligibility criteria for contract outpatient care, thus allowing some veterans, who would otherwise be ineligible, to receive treatment. In our view, this statute does not authorize VA to provide primary care through its access points. Nothing in the statute suggests that the absence of a VA facility close to veterans in a particular area makes primary care physicians unique in the medical community. The purpose of allowing VA to contract for services under the specialized medical resources authority is not to expand the geographic reach of its health care system, but to make available to eligible veterans services that are not feasibly available at a VA facility that presently serves them. Furthermore, contracting for the provision of primary care at access points does not obviate the need for primary care physicians at the parent VA facility. VA has specific statutory authority (38 U.S.C. 1703) to contract for medical care when its facilities cannot provide necessary services because they are geographically inaccessible. that are more restrictive than those under 38 U.S.C. 8153, upon which VA relies. For example, under 38 U.S.C. 8153, a veteran who has income above a certain level and no service-connected disability is eligible for pre- and post-hospitalization medical services and for services that obviate the need for hospitalization. But under 38 U.S.C. 1703, that same veteran is not eligible for pre-hospitalization medical services or for services that obviate the need for hospitalization. If access points are established in conformance with 38 U.S.C. 1703, VA would need to limit the types of services provided to all veterans except those with service-connected disabilities rated at 50 percent or higher (who are eligible to receive treatment of any condition). All other veterans are generally eligible for VA care based on statutory limitations (and to the extent that VA has sufficient funds). For example, veterans with service-connected conditions are eligible for all care needed to treat those conditions. Those with disabilities rated at 30 or 40 percent are eligible for care of non-service-connected conditions at contract access points to complete treatment incident to hospital care. Furthermore, veterans with disabilities rated at 20 percent or less, as well as those with no service-connected disability, may only be eligible for limited diagnostic services and follow-up care after hospitalization. Most veterans currently receiving care at access points do not have service-connected conditions and, therefore, do not appear to be eligible for all care provided. VA is to assess each veteran’s eligibility for care on the merits of his or her unique situation each time that the veteran seeks care for a new medical condition. We found no indication that VA requires access point contractors to establish veterans’ eligibility or priority for primary care or that contractors were making such determinations for each new condition. Last year, VA proposed ways to expand its statutory authority and veterans’ eligibility for VA health care. Several bills have been introduced that, if enacted, should authorize VA hospitals to establish contract access points and provide more primary care services to veterans in the same manner as the new access points are now doing. VA hospital directors are likely to face an evolving series of financial challenges as they establish new access points. In the short term, hospitals must finance new access points within their existing budgets; this will generally require a reallocation of resources among hospitals’ activities. Over the longer term, VA hospitals may incur unexpected, significant cost increases to provide care to veterans who would otherwise not have used VA’s facilities. These costs may, however, be offset somewhat if access points allow hospitals to serve current users more efficiently. So far, VA hospitals have successfully financed access points by implementing local management initiatives, unrelated to the access points, which allow the hospitals to operate more efficiently. For example, one hospital director estimated that he had generated resources for new access points by consolidating underused medical wards at a cost savings of $250,000. To date, most directors have concluded that it was more cost-effective to contract for care in the target locations than operate new access points themselves. Essentially, they have found that it is not cost-effective to operate their own access points for a relatively small number of veterans. For example, one hospital that targeted 173 veterans for an access point concluded that this number could be most efficiently served by contracting for care. By contrast, private providers seem willing to serve small numbers of veterans on a contractual, capitated basis because they already have a non-VA patient base and sufficient excess capacity to meet VA’s needs. The longer-term effects of new access points on VA’s budget are less certain. This is because VA has not clearly delineated its goals and objectives; nor has it developed a plan that specifies the total number of potential access points, time frames for beginning operations, estimates of current and potential new veterans to be served, and related costs. Of these, key cost factors appear to be the magnitude of new users and their willingness to be referred to VA hospitals for specialty and inpatient care. Costs could potentially vary greatly depending on whether VA hospitals’ primary objective is to improve convenience for current users or to expand their market share by attracting new users. average, each spend about $300,000 a year to provide primary care to about 1,500 veterans. This hospital can reduce the number of teams to 4 once it enrolls 1,500 veterans at new access points closer to their homes. These newly established access points could be cost-effective if their total costs are the same or lower than the VA hospital’s costs—$300,000 or less in this case. VA hospitals, however, could experience significant budget pressures if new access points modestly increase VA’s market share. For example, VA currently serves about 2.6 million of our nation’s 26 million veterans. To date, 40 percent of the 5,000 veterans enrolled at VA’s 12 new access points had not received VA care within the last 3 years. Most of the new users we interviewed had learned about the access points through conversations with other veterans, friends, and relatives or from television, newspapers, and radio. VA’s access points may prove more attractive to veterans in part because they overcome barriers such as geographic inaccessibility and quality of care. About half of the veterans who have used VA health care in the past, and a larger portion of the new users, said that it matters little whether they receive care in a VA-operated facility. In fact, almost two-thirds of the new users indicated that if hospitalization is needed, they would choose their local hospital rather than a distant VA facility. Veterans will also generally benefit financially by enrolling in new VA access points. For example, prior VA users will save expenses incurred traveling to distant VA facilities as well as out-of-pocket costs for any primary care received from non-VA providers; most said that they use both VA and non-VA providers. New VA users will also save out-of-pocket costs, with low-income veterans receiving free care and high-income veterans incurring relatively nominal charges. now VA pays the contract provider a capitated rate and then bills the insurer to recover its costs on a fee-for-service basis. The combination of these factors could lead to VA attracting several hundred thousand new users through its access points. This may force VA to turn veterans away if sufficient resources are not available, or it may cause VA to seek additional appropriations to accommodate the potential increased demand. Currently, VA is to provide outpatient care to the extent resources are available. When resources are insufficient to care for all eligible veterans, VA is to care for veterans with service-connected disabilities before providing care to those without such disabilities. Furthermore, when VA provides care to veterans without service-connected disabilities, it is to provide care for those with low incomes before those with high incomes. Presently, most of the nine hopsitals encourage current and new users to enroll in their new access points. For example, the 3 hospitals we visited had enrolled 1,250 veterans in new access points. Of the 1,250, about 20 percent had service-connected disabilities, including about 4 percent rated at 50 percent or higher. Of the remaining 80 percent, most had low incomes, including about 10 percent who were receiving VA pensions or aid and attendance benefits. Inequities in veterans’ access to VA care have been a long-standing concern. For example, about three-fourths of veterans (both those with service-connected conditions and others) using VA clinics live over 5 miles away, including about one-third who live over 25 miles away. Establishing new access points gives VA the opportunity to reduce some of these veterans’ travel distances. Although VA provided general guidance, it left the development of specific criteria for targeting new locations and populations to be served to network and hospital directors. Directors have several options when targeting new locations and populations to be served. For example, they could target those current users or potential new users living the greatest distances from VA facilities. have improved convenience for existing users and attracted new users as well. However, two new access points have served only current VA users, while another one has served only new users. VA’s plans to establish access points could represent a defining moment for its health care system as it prepares to move into the 21st century. On one hand, VA hospitals could use a relatively small amount of resources to improve access for a modest number of current or new users, such as those living the greatest distances from VA facilities or in the most underserved areas. On the other hand, VA hospitals could, over the next several years, open hundreds of access points and greatly expand market share. There are over 26 million veterans and 550,000 private physicians who could contract to provide care at VA expense. VA’s growth potential appears to be limited only by the availability of resources and statutory authority, new veteran users’ willingness to be referred to VA hospitals, and other health care providers’ willingness to contract with VA hospitals. Although VA should be commended for encouraging hospital directors to serve veterans using their facilities in the most convenient way possible, VA has not established access points in conformance with existing statutory authority. In our view, under current statutes, new access points should be VA-operated or provide contract care for only those services or classes of veterans specifically designated by VA’s geographic inaccessibility authority. While legislative changes are needed to authorize VA hospitals to provide primary care to veterans in the same manner as the new access points are now doing, such changes carry with them several financial and equity-of-access implications. In addition, VA has not developed a plan to ensure that hospitals establish access points in an affordable manner. If developed, such a plan could articulate the number of new access points to be established, target populations to be served, time frames to begin operations, and related costs and funding sources. It could also articulate specific travel times or distances that represent reasonable veteran travel goals that hospitals could use in locating access points. points in accordance with the statutory service priorities. If sufficient resources are not available to serve all eligible veterans expected to seek care, new access points that are established would serve, first, veterans with service-connected disabilities and then, second, other categories of veterans, with higher income veterans served last. Finally, this approach could provide for more equitable access to VA care than VA’s current strategy of allowing local hospitals to establish access points that serve veterans on a first-come, first-served basis and then rationing services when resources run out. Mr. Chairman, this concludes my statement. I will be happy to answer any questions that you or other Members may have. For more information, please call Paul Reynolds, Assistant Director, at (202) 512-7109. Michael O’Dell, Patrick Gallagher, Abigail Ohl, Robert Crystal, Sylvia Shanks, Linda Diggs, Larry Moore, and Joan Vogel also contributed to the preparation of this statement. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

GAO discussed the Department of Veterans Affairs' (VA) plan to improve veterans' access to primary health care. GAO noted that: (1) by creating new access points, VA may be able to cost-effectively improve users' access to health care and reduce the inequities in veterans' access caused by geographic inaccessibility; (2) creating new access points may increase costs dramatically, since VA failure to adhere to statutory eligibility limitations has resulted in an increase in the amount of services provided and members receiving benefits; (3) the lack of a VA facility in a particular area does not necessarily justify the establishment of a new primary care access point in that area; (4) VA hospitals need to find ways to finance new access points through reorganization of resources rather than with additional funds; (5) in some underserved areas, it has been more cost-effective to contract for health care services rather than establishing a new VA access point; and (6) new access points could cause financial difficulties for VA, because these new facilities will make VA funded care more accessible to veterans who would otherwise not have used VA facilities.

With the growth in the nation’s highway and aviation systems in the previous decades, intercity passenger rail service lost its competitive edge. Highways have enabled cars to be competitive with conventional passenger trains (those operating up to 90 miles per hour), while airplanes can carry passengers over longer distances at higher speeds than can trains. The Rail Passenger Service Act of 1970 created Amtrak to provide intercity passenger rail service because existing railroads found such service unprofitable. Like other major national intercity passenger rail systems in the world, Amtrak has received substantial government support—nearly $24 billion for capital and operating needs through fiscal year 2001. Amtrak operates a 22,000-mile passenger rail system, primarily over tracks owned by freight railroads. (See fig. 1.) Amtrak owns 650 miles of track, primarily in the Northeast Corridor, which runs between Boston and Washington, D.C. About 70 percent of Amtrak’s service is provided by conventional trains; the remainder is provided by high-speed trains. It offers high-speed service (up to 150 miles per hour) on the Northeast Corridor. About 22 million passengers in 45 states rode Amtrak’s trains in 2000 (about 60,000 passengers each day), a small share of the commercial intercity travel market. In comparison, in 1999, domestic airlines carried about 1.6 million passengers per day, and intercity buses carried about 983,000 people per day (latest data available). Proponents see high-speed rail systems (with speeds over 90 miles per hour) as a promising means for making trains more competitive with these other modes of transportation. They see introduction of high-speed rail in various areas of the country as a cost-effective means of increasing transportation capacity (the ability to carry more travelers) and relieving air and highway congestion, among other things. The Federal Railroad Administration defines high-speed rail transportation as intercity passenger service that is time-competitive with airplanes or automobiles on a door-to-door basis for trips ranging from about 100 to 500 miles. The agency chose a market-based definition, rather than a speed-based definition, because it recognizes that opportunities for successful high- speed rail projects differ markedly among different pairs of cities. High-speed trains can operate on tracks owned by freight railroads that have been upgraded to accommodate higher speeds or on dedicated rights of way. The greater the passenger train’s speed, the more likely it is to require a dedicated right-of-way for both safety and operating reasons. Ten corridors (not including Amtrak’s Northeast Corridor) have been designated as high-speed rail corridors either through legislation or by the Department of Transportation. (See fig. 2.) Designated corridors may be eligible for federal funds through several Department of Transportation programs. According to the Department, the designation also serves as a catalyst for sustained state, local, and public interest in corridor development. The 10 federally designated corridors are generally in various early stages of planning. Amtrak’s Northeast Corridor is in operation and supports high-speed service up to 150 miles per hour. Amtrak’s future is uncertain, in part, because it has made limited progress toward achieving operational self-sufficiency, as required by the Amtrak Reform and Accountability Act of 1997. The act prohibits Amtrak from using federal funds for operating expenses, except for an amount equal to excess Railroad Retirement Tax Act payments, after 2002. If the Amtrak Reform Council (an independent council established by the act) finds that Amtrak will not achieve operational self-sufficiency, the act requires that the railroad submit to the Congress a liquidation plan and the Council submit to the Congress a plan for a restructured national intercity passenger rail system. Amtrak has made little progress in reducing its need for federal operating assistance—i.e., closing its “budget gap”—in order to reach operational self-sufficiency. In fiscal year 2000, Amtrak closed its budget gap by only $5 million, achieving very little of its planned $114 million reduction. Results for the first 8 months of fiscal year 2001 (October 2000 through May 2001) are not encouraging: Amtrak’s revenues increased by about $83 million (6 percent) over the same period in 2000, but its cash expenses increased by about $120 million (7 percent). Overall, in the last 6 years (fiscal years 1995 through 2000), Amtrak has reduced its budget gap by only $83 million. By the end of 2002, about 17 months from now, Amtrak will need to achieve about $281 million in additional financial improvements to reach operational self-sufficiency. Although Amtrak has undertaken a number of actions to reach and sustain operational self- sufficiency by the end of 2002, we believe that it is unlikely that it will be able to do so. Intercity passenger rail systems, like other intercity transportation systems, are expensive. The level of federal financial assistance that would be required to maintain and expand the nation’s intercity passenger rail network far exceeds the amounts that have been provided in recent years. In February, Amtrak’s capital and finance plans called for $30 billion (in constant 2000 dollars) in federal capital support from 2001 through 2020 (an average of $1.5 billion each year, with $955 million in fiscal year 2002) to upgrade its operations and to invest as seed money in high-speed rail corridors. The proposed amount is nearly $10 billion more than the $20.4 billion (in 2000 dollars) that Amtrak has received in federal operating and capital support over the past 20 years (1982 through 2001). The amount is also nearly three times the annual amount that the Congress provided Amtrak in recent years (e.g., $571 million for 2000 and $521 million for 2001 that could be used for both capital and operating expenses). Additionally, fully developing high-speed rail corridors would require substantial amounts of federal capital assistance. Overall cost figures are unknown because corridor initiatives are in various stages of planning. However, the capital costs to fully develop the federally designated high- speed rail corridors and the Northeast Corridor could be $50 billion to $70 billion over 20 years, according to a preliminary Amtrak estimate. The federal government could be expected to provide much of these funds. However, estimates of the costs and the financial viability of high-speed rail systems can be subject to much uncertainty, especially when they are in the early stages of planning. Some of the federal funding (as much as $12 billion) for high-speed rail projects could be provided if the High-Speed Rail Investment Act of 2001 (H.R. 2329) is enacted. (A similar bill, S. 250, was introduced in the Senate.) Amtrak views the bill as an important first step in providing seed money and helping build partnerships with states, localities, and freight railroads critical to the development of high-speed passenger rail in the United States. According to Amtrak and Federal Railroad Administration officials, several federally designated corridors could be ready for infrastructure investment in the next year or so. We agree that the bill offers the potential to facilitate the development of high-speed rail systems outside the Northeast Corridor. However, issues remain to be addressed if corridors are to realize the benefits that proponents see for them, including how to complete projects where costs grow beyond the bond funds made available for them. Further, in applying the bill’s public benefit criteria, the Secretary and others will have to address issues raised by a project that, by itself, is insufficient to provide high-speed rail service on a corridor (or a portion of the corridor). In these situations, one approach could be to require applicants for bond funding to demonstrate that other resources could reasonably be expected to be available to initiate such service or that the project would result in a “useful asset” even if no other funding is provided. There is growing interest in and enthusiasm for intercity passenger rail by states, particularly for high-speed rail systems. Proponents see opportunities for increasing ridership—such as a quadrupling of riders on corridors other than the Northeast Corridor (from 10 million to 40 million passengers annually) by 2020. Proponents see a number of public benefits—such as reduced congestion, improved air quality, increased travel capacity, and greater travel choices—from further developing and expanding such systems. According to the Federal Railroad Administration, 34 states are participating in the development of high- speed rail corridors and these states have invested more than $1 billion for improvements of local rail lines for this purpose. As the Congress moves forward to define the role of intercity passenger rail in our nation’s transportation framework, it needs realistic appraisals of the level, nature, and distribution of public benefits that can be expected to accrue. A public benefit cited to support the expansion of high-speed passenger rail service is its potential to help relieve congestion in air travel and on our nation’s highways. Such service might have some impact on congestion if it were targeted to areas where roads are at or near their design capacity, for example. As more traffic uses these roads, travel time increases sharply and the delays are felt by all travelers. Expectations for the extent to which intercity passenger rail can reduce congestion must be realistic. For example, in 1995, we reported that each passenger train along the busy Los Angeles-San Diego corridor kept about 129 cars off the highway (about 2,240 cars each day)—a small number relative to the total volume. Intercity passenger rail cannot be expected to ease congestion at airports when long distance travel is involved because rail travel is not time- competitive with air travel. For example, the scheduled travel time for the approximately 700-mile distance between Washington, D.C., and Chicago is about 2 hours for air and about 18 hours for conventional Amtrak passenger trains. High-speed rail proponents believe that one potential for high-speed rail is to replace shorter intercity air service, thus freeing up airport capacity for longer-distance travel. High-speed rail may work best for relatively short trips (of several hundred miles or less) where it connects densely populated cities with substantial travel between the cities. Amtrak’s Metroliner service, which travels up to 125 miles per hour between New York City and Washington, D.C., is an example. The Metroliner is one of only two Amtrak routes that made an operating profit in 2000. Notably, the Federal Railroad Administration is supporting the development of high-speed rail corridors that are competitive in travel time with air and highway travel. Another advantage cited for intercity passenger rail is that it is energy- efficient, thus improving air quality. For example, the Congressional Research Service reported that Amtrak is much more energy-efficient than air travel. However, it also found that Amtrak is much less energy- efficient than intercity bus transportation and about equal in energy efficiency as automobiles for trips longer than 75 miles. Our 1995 analysis of the Los Angeles-San Diego corridor found that the increase in emissions from added automobiles, intercity buses, and aircraft would be very small if existing diesel-powered trains were discontinued. Another cited advantage is that an investment in intercity passenger rail can do more to increase transportation capacity than a similar expenditure in another mode. For example, Amtrak recently suggested that a dollar invested in intercity rail can increase capacity 5 to 10 times more than a dollar invested in new highways, depending on location. However, a 1999 study of the costs of providing high-speed rail, highway, and air service in a particular corridor reached different conclusions. This study found that the investment costs (per passenger-kilometer traveled) of providing highway and high-speed rail service between San Francisco and Los Angeles were about the same, but both were substantially higher than the cost of providing air service for the same route. When considering increasing transportation capacity, federal, state, and other decisionmakers will need to understand the extent to which travelers are using existing capacity and are likely to use the increased capacity in various modes. If new capacity is underutilized (e.g., because it is not cost competitive or convenient), then the expected benefit will not be fully realized. Another benefit ascribed to expanding intercity passenger rail is increasing travel choices—as an alternative to air, automobile, or bus travel. For example, the Federal Railroad Administration estimates that the development of the designated high-speed rail corridors could ultimately give about 150 million Americans (representing slightly over half of the nation’s current population) access to one of these rail networks. Yet travel choice entails more than physical access. To offer travel choice, rail must be competitive with other travel modes: it must take travelers where they want to go; be available at convenient times of the day; be competitive in terms of price and travel time; and meet travelers’ expectations for safety, reliability, and comfort. For example, travelers may view a rail system more favorably if it offers multiple trips— rather than one or two round trips—each day and if it arrives and departs at convenient hours. The Congress is facing critical decisions about the future of Amtrak and intercity passenger rail because operating a national intercity passenger rail system as currently structured without substantial federal operating support is very unlikely. Thus, the goal of a national system much like Amtrak’s current system and the goal of operational self-sufficiency appear to be incompatible. In fact, Amtrak was created because other railroads were unable to profitably provide passenger service. In addition, Amtrak needs more capital funding than has been historically provided in order to operate a safe, reliable system that can attract and retain customers. Developing high-speed rail systems is also costly, requiring additional tens of billions of dollars. If intercity passenger rail is to have a future in the nation’s transportation system, the Congress needs to be provided with realistic assessments of the expected public benefits and resulting costs of these investments as compared with investments in other modes of transportation. Such analyses would provide sound bases for congressional action in defining the national goals that will be pursued, the extent that Amtrak and other intercity passenger rail systems can contribute to meeting these goals, state and federal roles, and whether federal and state funds would likely be available to sustain such systems over the long term. Mr. Chairman, this concludes our testimony. We would be pleased to answer any questions you or Members of the Subcommittee might have.

Congress faces critical decisions about the future of the National Railroad Passenger Corporation (Amtrak) and intercity passenger rail. In GAO's view, the goal of a national system, much like Amtrak's current system, and the goal of operational self-sufficiency appear to be incompatible. In fact, Amtrak was created because other railroads were unable to profitably provide passenger service. In addition, Amtrak needs more capital funding than has been historically provided in order to operate a safe, reliable system that can attract and retain customers. Developing a high-speed rail system is also costly, requiring additional tens of billions of dollars. If intercity passenger rail is to have a future in the nation's transportation system, Congress needs realistic assessments of the expected public benefits and the resulting costs of these investments as compared with investments in other modes of transportation. Such analyses would provide sound bases for congressional action in defining the national goals that will be pursued, the extent that Amtrak and other intercity passenger rail systems can contribute to meeting these goals, and whether federal and state money would be available to sustain such systems over the long term.

We reported that even though DCPS changed parts of its enrollment process in school year 1996-97 to address prior criticisms, the process remained flawed. Some of the changes, such as the use of an enrollment card to verify attendance, increased complexity and work effort but did little to improve the count’s credibility. Because DCPS counts enrollment by counting enrollment records—not actual students—accurate records are critical for an accurate count. Errors, including multiple enrollment records for a single student, remained in SIS, but DCPS had only limited mechanisms for correcting these errors. For example, although Management Information Services personnel maintained SIS, they had no authority to correct errors. In addition, DCPS’ enrollment procedures allowed multiple records to be entered into SIS for a single student, and its student transfer process may have allowed a single student to be enrolled in at least two schools simultaneously. Furthermore, DCPS’ practice of allowing principals to enroll unlimited out-of-boundary students increased the possibility of multiple enrollment records for one student. Nevertheless, DCPS did not routinely check for duplicate records. In addition, DCPS’ official enrollment count included categories of students usually excluded from enrollment counts in other districts when the counts are used for funding purposes. For example, DCPS included in its enrollment count students identified as tuition-paying nonresidents of the District of Columbia and students above and below the mandatory age for public education in the District of Columbia, including Head Start participants, prekindergarten students (age 4), preschool students (age 0 to 3), and some senior high and special education students aged 20 and older. In contrast, the three states that we visited reported that they exclude from enrollment counts used for funding purposes any student who is above or below mandatory school age or who is fully funded from other sources. Furthermore, even though the District of Columbia Auditor has suggested that students unable to document their residency be excluded from the official enrollment count, whether they pay tuition or not, DCPS included these students in its enrollment count for school year 1996-97. During school year 1996-97, District of Columbia schools had some attractive features. Elementary schools in the District had free all-day prekindergarten and kindergarten, and some elementary schools had before- and after-school programs at low cost. For example, one school we visited had before- and after-school care for $25 per week. This program extended the school day’s hours to accommodate working parents—the program began at 7 a.m. and ended at 6 p.m. In addition, several high schools had highly regarded academic and artistic programs; and some high schools had athletic programs that reportedly attracted scouts from highly rated colleges. Furthermore, students could participate in competitive athletic programs until age 19 in the District, compared with age 18 in some nearby jurisdictions. Problems persisted, however, in the critical area of residency verification. In school year 1996-97, schools did not always verify student residency as required by DCPS’ own procedures. Proofs of residency, when actually obtained, often fell short of DCPS’ standards. Moreover, central office staff did not consistently track failures to verify residency. Finally, school staff and parents rarely suffered sanctions for failure to comply with the residency verification requirements. In addition, the pupil accounting system failed to adequately track students. SIS allowed more than one school to count a single student when the student transferred from one school to another. Furthermore, schools did not always follow attendance rules, and SIS lacked the capability to track implementation of the rules. Finally, some attendance rules, if implemented, could have allowed counting of nonattending students. Other school districts report that they use several approaches to control errors, such as the ones we identified, and to improve the accuracy of their enrollment counts. These include using centralized enrollment and pupil accounting centers and a variety of automated SIS edits and procedures designed to prevent or disallow pupil accounting errors before they occur. the enrollment count. The Authority decided, however, that the inadequacies that led to the restructuring of the public school system would make auditing the school year 1996-97 count counterproductive. In short, the Reform Act’s audit requirement was not met. Because the enrollment count will become the basis for funding DCPS and is even now an important factor in developing DCPS’ budget and allocating its resources, we recommended in our report that the Congress consider directing DCPS to report separately in its annual reporting of the enrollment count those students fully funded from other sources, such as Head Start participants and tuition-paying nonresidents; above and below the mandatory age for compulsory public education, such as those in prekindergarten or those aged 20 and above; and for whom District residency cannot be confirmed. We also recommended that the DCPS Chief Executive Officer/ Superintendent do the following: Clarify, document, and enforce the responsibilities and sanctions for employees involved in the enrollment count process. Clarity, document, and enforce the residency verification requirements for students and their parents. Institute internal controls in the student information database, including database management practices and automatic procedures and edits to control database errors. Comply with the reporting requirement of the District of Columbia School Reform Act of 1995. We further recommended that the District of Columbia Financial Responsibility and Management Assistance Authority comply with the auditing requirements of the District of Columbia School Reform Act of 1995. checks and balances, no aggressive central monitoring, and few routine reports were in place. In addition, he said that virtually no administrative sanctions were applied, indicating that the submitted reports were hardly reviewed. The Authority shared DCPS’ view that many findings and recommendations in our report will help to correct what it characterized as a flawed student enrollment count process. Its comments did, however, express concerns about certain aspects of our report. The Authority was concerned that we did not discuss the effects of the Authority’s overhaul of DCPS in November 1996. It also commented that our report did not note that the flawed student count was one of the issues prompting the Authority to change the governance structure and management of DCPS. In the report, we explained that we did not review the Authority’s overhaul of DCPS or the events and concerns leading to the overhaul. DCPS has made some changes in response to our recommendations. For example, it dropped the enrollment card. DCPS now relies upon other, more readily collected information, such as a child’s grades or work, as proof that a child has been attending. DCPS has also strengthened some mechanisms for correcting SIS errors, such as multiple enrollment records for a single student. Staff reported that central office staff now conduct monthly duplicate record checks. These staff then work with the schools to resolve errors. In addition, central office staff now have the authority to correct SIS errors directly. Schools are also now required to prepare monthly enrollment reports, signed by the principal, throughout the school year. Central office staff review and track these reports. In addition, SIS can now track consecutive days of absence for students, which helps track the implementation of attendance rules. Finally, all principals are now required to enter into SIS the residency status of all continuing as well as new DCPS students. DCPS officials believe SIS’ residency verification status field also serves as a safeguard against including both duplicate records and inactive students in the enrollment count. who live outside school attendance boundaries. School data entry staff may still manually override SIS safeguards against creating multiple records. In addition, SIS still lacks adequate safeguards to ensure that it accurately tracks students when they transfer from one school to another. SIS’ new residency verification status field will not prevent the creation or maintenance of duplicate records. For example, a student might enroll in one school, filling out all necessary forms required by that school, including the residency verification form, and decide a few days later to switch to another school. Rather than officially transferring, the student might simply go to this second school and re-register, submitting another residency verification form as part of the routine registration paperwork. If the second school’s data entry staff choose to manually override SIS safeguards, duplicate records could be created. Even if a student did not submit a residency verification form at the second school, the data entry staff could simply code the SIS residency field to show that no form had been returned, creating duplicate records. Regarding the critical area of residency verification, all principals must now issue and collect from all students a completed and signed residency verification form (as well as enter residency verification status information into SIS as discussed). Principals are also encouraged to obtain proofs of residency and attach these to the forms. DCPS considers the form alone, however, the only required proof of residency for the 1997-98 count. The school district encouraged but not did not require such supporting proofs to accompany this form. A signed form without proofs of residency is insufficient to prove residency in our opinion. Such proofs are necessary to establish that residency requirements have been met. Until DCPS students are required to provide substantial proofs of residency, doubts about this issue will remain. of residency.) Furthermore, DCPS staff told us that the school district has not yet monitored and audited the schools’ residency records but plans to do so shortly. DCPS has proposed modifications to the Board of Education’s rules governing residency to strengthen these rules. The proposed modifications would strengthen the residency rules in several ways by stating that at least three proofs of residency “must” be submitted, rather than “may be” submitted, as current rules state; specifying and limiting documents acceptable as proofs; eliminating membership in a church or other local organization operating in the District of Columbia as an acceptable proof; and strengthening penalties for students who do not comply. DCPS staff told us that these proposed changes are now under consideration by the Authority. Regarding our recommendation that the Congress consider directing DCPS to report separately the enrollment counts of certain groups of students, the Congress has not yet required that DCPS do this. DCPS continues to include these groups in its enrollment count. For school year 1997-98, DCPS reports an official count of 77,111 students. This number includes 5,156 preschool and prekindergarten students who are below mandatory school age in the District of Columbia. Some of these students are Head Start participants and are paid for by Head Start; nevertheless, DCPS counts Head Start participants as part of its elementary school population. The count also includes 18 tuition-paying nonresident students attending DCPS. In addition, DCPS staff told us that although the count excludes adult education students, they did not know whether it includes other students above the mandatory school age. Finally, as noted earlier, the count includes students who have not completed residency verification. In addition to talking to DCPS staff, we talked to staff at the Authority about whether the Authority has provided for an independent audit of the 1997-98 enrollment count. Staff said that the Authority is in the process of providing for an audit but has not yet awarded a contract. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions you or members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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Pursuant to a congressional request, GAO discussed its recent report on the enrollment count process that District of Columbia Public Schools (DCPS) used in school year 1996-97. GAO noted that: (1) in spite of some changes in DCPS' enrollment count process in response to criticisms, the 1996-97 count process remained flawed in several respects; (2) for example, the Student Information System (SIS) continued to have errors, such as multiple enrollment records for a single student and weaknesses in the system's ability to track students; (3) in addition, verification of student residency remained problematic; (4) although DCPS made some changes in its enrollment count process for the 1997-98 school year in response to GAO's recommendations and plans to make more, the larger systemic issues appear to remain mostly uncorrected; (5) consequently, fundamental weaknesses still remain in the enrollment count process, making it vulnerable to inaccuracy and weakening its credibility; (6) for example, DCPS staff report that although an important internal control--duplicate record checks--has been implemented for SIS, additional internal controls are still lacking; (7) several DCPS enrollment and pupil accounting procedures continue to increase the possibility of multiple enrollment records for a single student; (8) GAO is concerned that duplicate record checks alone may not be sufficient to protect the integrity of SIS, given the many possiblities for error; (9) furthermore, the enrollment count may still include nonresident students; (10) more than half of DCPS' students have either failed to provide the residency verification forms or have provided no proofs of residency to accompany their forms; (11) GAO questions the appropriateness of including students who have failed to prove residency in the official count, particularly students who have not even provided the basic form; (12) in addition, because DCPS has not yet monitored and audited residency verification at the school level, additional problems may exist that are not yet apparent; (13) proposed new rules governing residency will help DCPS deal with residency issues; (14) until these issues are fully addressed and resolved, however, the accuracy and credibility of the enrollment count will remain questionable; (15) in GAO's more recent discussions with DCPS officials, they acknowledge that more needs to be done to improve the enrollment count process, particularly in the areas of further strengthening DCPS' automated internal controls and addressing the nonresident issue; and (16) they have expressed concern, however, that GAO has failed to recognize fully the improvements DCPS made in the enrollment count process for school year 1997-98.

In our review of the 240 visa revocations, we found examples where information on visa revocations did not flow between the State Department and appropriate units overseas and within INS and the FBI. State Department officials from the Visa Office told us that when they revoke a visa in Washington, they are supposed to take the following steps: (1) notify consular officers at all overseas posts that the individual is a suspected terrorist by entering a lookout on the person into State’s watch list, the Consular Lookout and Support System, known as CLASS; (2) notify the INS Lookout Unit via a faxed copy of the revocation certificate so that the unit can enter the individual into its watch list and notify officials at ports of entry; and (3) notify the issuing post via cable so that the post can attempt to contact the individual to physically cancel his visa. Information-only copies of these cables are also sent to INS’s and FBI’s main communications enters. State officials told us they rely on INS and FBI internal distribution mechanisms to ensure that these cables are routed to appropriate units within the agencies. Figure 1 demonstrates gaps that we identified in the flow of information from State to INS and the FBI, and within these agencies, as well as the resulting inconsistencies in the posting of lookouts to the agencies’ respective watch lists. The top arrow in the diagram shows the extent of communication on visa revocations between the State Department’s Bureau of Consular Affairs and State’s overseas consular posts. We found that State had not consistently followed its informal policy of entering a lookout into its CLASS lookout system at the time of the revocation. State officials said that they post lookouts on individuals with revoked visas in CLASS so that, if the individual attempts to get a new visa, consular officers at overseas posts will know that the applicant has had a previous visa revoked and that a security advisory opinion on the individual is required before issuing a new visa. Without a lookout, it is possible that a new visa could be issued without additional security screening. We reviewed CLASS records on all 240 individuals whose visas were revoked and found that the State Department did not post lookouts within a 2-week period of the revocation on 64 of these individuals. The second arrow depicts the information flow on revocations between State and the INS Lookout Unit, which is the inspections unit that posts lookouts on INS’s watch list to prevent terrorists (and other inadmissible aliens) from entering the United States. Officials from the INS Lookout Unit told us they had not received any notice of the revocations from State in 43 of the 240 cases. In another 47 cases, the INS Lookout Unit received the revocation notice only via a cable; however, these cables took, on average, 12 days to reach the Lookout Unit, although in one case it took 29 days. An official from the INS communications center told us that, because State’s cables were marked “information only,” they were routed through the Inspections division first, which was then supposed to forward them to the Lookout Unit. He told us that if the cables had been marked as “action” or “urgent,” they would have been sent immediately to the Lookout Unit. In cases where the INS Lookout Unit could document that it received a notification, it generally posted information on these revocations in its lookout database within one day of receiving the notice. When it did not receive notification, it could not post information on these individuals in its lookout database, precluding INS inspectors at ports of entry from knowing that these individuals had had their visas revoked. The third arrow on the diagram shows the communication between State and INS’s National Security Unit that is responsible for investigations. This broken arrow shows that the State Department did not send copies of the faxed revocation certificates or cables to the unit. Further, in cases where the INS Lookout Unit received the revocation notification from State, INS Lookout Unit officials said that they did not routinely check to see whether these individuals had already entered the United States or notify investigators in the National Security Unit of the visa revocations. Without this notification, the National Security Unit would have no independent basis to begin an investigation. In May 2003, an official from the Lookout Unit said that her unit recently established a procedure in which, upon receiving notification of a revocation, she will query the Interagency Border Inspection System to determine if the individual recently entered the country. She will then give this information to investigators in the National Security Unit, which is now part of the Bureau of Immigration and Customs Enforcement. The bottom arrow on the diagram shows the information flow on visa revocations from State to the FBI’s Counterterrorism units. We found that that these units did not consistently receive information on visa revocations. FBI officials said that the agency’s main communications center received the notifications but the officials could not confirm if the notifications were then distributed internally to the appropriate investigative units at the FBI or to the agency’s watch list unit, known as the Terrorist Watch and Warning Unit. The Department of Justice said that to add a person to its watch list, additional information must be provided to the FBI, such as the person’s full name, complete date of birth, physical descriptors, and watch list-specific classification information. The revocation notifications did not include most of this information. Our analysis shows that thirty individuals with revoked visas have entered the United States and may still remain in the country. Twenty-nine of these individuals entered before State revoked their visas. An additional person who may still be in the country entered after his visa was revoked. INS inspectors allowed at least three other people to enter the country even though their visas had already been revoked, largely due to breakdowns in the notification system. These three people have left the country. Despite these problems, we noted cases where the visa revocation process prevented possible terrorists from entering the country or cleared individuals whose visas had been revoked. For example, INS inspectors successfully prevented at least 14 of the 240 individuals from entering the country because the INS watch list included information on the revocation action or had other lookouts on them. In addition, State records showed that a small number of people reapplied for a new visa after the revocation. State used the visa issuance process to fully screen these individuals and determined that they did not pose a security threat. The INS and the FBI did not routinely attempt to investigate or locate any of the individuals whose visas were revoked and who may be in the country. Due to congressional interest in specific cases, INS investigators located four of the persons in the United States but did not attempt to locate other revoked visa holders who may have entered the country. INS officials told us that they generally do not investigate these cases because it would be challenging to remove these individuals unless they were in violation of their immigration status even if the agency could locate them. A visa revocation by itself is not a stated grounds for removal under the Immigration and Nationality Act (INA). Investigators from INS’s National Security Unit said they could investigate individuals to determine if they were violating the terms of their admission, for example by overstaying the amount of time they were granted to remain in the United States, but they believed that under the INA, the visa revocation itself does not affect the alien’s legal status in the United States—even though the revocation was for terrorism reasons. They and other Homeland Security officials raised a number of legal issues associated with removing an individual from the country after the person’s visa has been revoked. Our report discusses these issues in detail. FBI officials told us that they did not routinely attempt to investigate and locate individuals with revoked visas who may have entered the United States. They said that State’s method of notifying them did not clearly indicate that visas had been revoked because the visa holder may pose terrorism concerns. Further, the notifications were sent as “information only” and did not request specific follow-up action by the FBI. Moreover, State did not attempt to make other contact with the FBI that would indicate any urgency in the matter. The weaknesses I have outlined above resulted from the U.S. government’s limited policy guidance on the visa revocation process. Our analysis indicates that the U.S. government has no specific policy on the use of visa revocations as an antiterrorism tool and no written procedures to guide State in notifying the relevant agencies of visa revocations on terrorism grounds. State and INS have written procedures that guide some types of visa revocations; however, neither they nor the FBI has written internal procedures for notifying their appropriate personnel to take specific actions on visas revoked by State Department headquarters officials, as was the case for all the revoked visas covered in our review. While State and INS officials told us they use the visa revocation process to prevent suspected terrorists from entering the United States, neither they nor FBI officials had policies or procedures that covered investigating, locating, and taking appropriate action in cases where the visa holder had already entered the country. In conclusion, Mr. Chairman, the visa process could be an important tool to keep potential terrorists from entering the United States. Ideally, information on suspected terrorists would reach the State Department before it decides to issue a visa. However, there will always be some cases when the information arrives too late and State has already issued a visa. Revoking a visa can mitigate this problem, but only if State promptly notifies appropriate border control and law enforcement agencies and if these agencies act quickly to (1) notify border control agents and immigration inspectors to deny entry to persons with a revoked visa, and (2) investigate persons with revoked visas who have entered the country. Currently there are major gaps in the notification and investigation processes. One reason for this is that there are no specific written policies and procedures on how notification of a visa revocation should take place and what agencies should do when they are notified. As a result, there is heightened risk that suspected terrorists could enter the country with a revoked visa or be allowed to remain after their visa is revoked without undergoing investigation or monitoring. State has emphasized that it revoked the visas as a precautionary measure and that the 240 persons are not necessarily terrorists or suspected terrorists. State cited the uncertain nature of the information it receives from the intelligence and law enforcement communities on which it must base its decision to revoke an individual’s visa. We recognize that the visas were revoked as a precautionary measure and that the persons whose visas were revoked may not be terrorists. However, the State Department determined that there was enough derogatory information to revoke visas for these persons because of terrorism concerns. Our recommendations, which are discussed below, are designed to ensure that persons whose visas have been revoked because of potential terrorism concerns be denied entry to the United States and those who may already be in the United States be investigated to determine if they pose a security threat. To remedy the systemic weaknesses in the visa revocation process, we are recommending that the Secretary of Homeland Security, who is now responsible for issuing regulations and administering and enforcing provisions of U.S. immigration law relating to visa issuance, work in conjunction with the Secretary of State and the Attorney General to: develop specific policies and procedures for the interagency visa revocation process to ensure that notification of visa revocations for suspected terrorists and relevant supporting information are transmitted from State to immigration and law enforcement agencies, and their respective inspection and investigation units, in a timely manner; develop a specific policy on actions that immigration and law enforcement agencies should take to investigate and locate individuals whose visas have been revoked for terrorism concerns and who remain in the United States after revocation; and determine if any persons with visas revoked on terrorism grounds are in the United States and, if so, whether they pose a security threat. In commenting on our report, Homeland Security agreed that the visa revocation process should be strengthened as an antiterrorism tool. State and Justice did not comment on our recommendations. I would be happy to answer any questions you or other members of the subcommittee may have. For future contacts regarding this testimony, please call Jess Ford or John Brummet at (202) 512-4128. Individuals making key contributions to this testimony included Judy McCloskey, Kate Brentzel, Mary Moutsos, and Janey Cohen. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The National Strategy for Homeland Security calls for preventing the entry of foreign terrorists into our country and using all legal means to identify; halt; and where appropriate, prosecute or bring immigration or other civil charges against terrorists in the United States. GAO reported in October 2002 that the Department of State had revoked visas of certain persons after it learned they might be suspected terrorists, raising concerns that some of these individuals may have entered the United States before or after State's action. Congressional requesters asked GAO to (1) assess the effectiveness of the visa revocation process and (2) identify the policies and procedures of State, the Immigration and Naturalization Service (INS), and the Federal Bureau of Investigation (FBI) that govern their respective actions in the process. Our analysis shows that the visa revocation process was not being fully utilized as an antiterrorism tool. The visa revocation process broke down when information on individuals with revoked visas was not shared between State and appropriate immigration and law enforcement offices. It broke down even further when individuals had already entered the United States prior to revocation. INS and the FBI were not routinely taking actions to investigate, locate, or resolve the cases of individuals who remained in the United States after their visas were revoked. In our review of 240 visa revocations, we found that (1) appropriate units within INS and the FBI did not always receive notifications of all the revocations; (2) names were not consistently posted to the agencies' watch lists of suspected terrorists; (3) 30 individuals whose visas were revoked on terrorism grounds had entered the United States and may still remain; and (4) INS and the FBI were not routinely taking actions to investigate, locate, or resolve the cases of individuals who remained in the United States after their visas were revoked. These weaknesses resulted from the U.S. government's limited policy guidance on the process. None of the agencies have specific, written policies on using the visa revocation process as an antiterrorism tool.

In October 1998, the EPA Administrator announced plans to create an office with responsibility for information management, policy, and technology. This announcement came after many previous efforts by EPA to improve information management and after a long history of concerns that we, the EPA Inspector General, and others have expressed about the agency’s information management activities. Such concerns involve the accuracy and completeness of EPA’s environmental data, the fragmentation of the data across many incompatible databases, and the need for improved measures of program outcomes and environmental quality. The EPA Administrator described the new office as being responsible for improving the quality of information used within EPA and provided to the public and for developing and implementing the goals, standards, and accountability systems needed to bring about these improvements. To this end, the information office would (1) ensure that the quality of data collected and used by EPA is known and appropriate for its intended uses, (2) reduce the burden of the states and regulated industries to collect and report data, (3) fill significant data gaps, and (4) provide the public with integrated information and statistics on issues related to the environment and public health. The office would also have the authority to implement standards and policies for information resources management and be responsible for purchasing and operating information technology and systems. Under a general framework for the new office that has been approved by the EPA Administrator, EPA officials have been working for the past several months to develop recommendations for organizing existing EPA personnel and resources into the central information office. Nonetheless, EPA has not yet developed an information plan that identifies the office’s goals, objectives, and outcomes. Although agency officials acknowledge the importance of developing such a plan, they have not established any milestones for doing so. While EPA has made progress in determining the organizational structure of the office, final decisions have not been made and EPA has not yet identified the employees and the resources that will be needed. Setting up the organizational structure prior to developing an information plan runs the risk that the organization will not contain the resources or structure needed to accomplish its goals. Although EPA has articulated both a vision as well as key goals for its new information office, it has not yet developed an information plan to show how the agency intends to achieve its vision and goals. Given the many important and complex issues on information management, policy, and technology that face the new office, it will be extremely important for EPA to establish a clear set of priorities and resources needed to accomplish them. Such information is also essential for EPA to develop realistic budgetary estimates for the office. EPA has indicated that it intends to develop an information plan for the agency that will provide a better mechanism to effectively and efficiently plan its information and technology investments on a multiyear basis. This plan will be coordinated with EPA ‘s agencywide strategic plan, prepared under the Government Performance and Results Act. EPA intends for the plan to reflect the results of its initiative to improve coordination among the agency’s major activities relating to information on environment and program outcomes. It has not yet, however, developed any milestones or target dates for initiating or completing either the plan or the coordination initiative. In early December 1998, the EPA Administrator approved a broad framework for the new information office and set a goal of completing the reorganization during the summer of 1999. Under the framework approved by the EPA Administrator, the new office will have three organizational units responsible for (1) information policy and collection, (2) information technology and services, and (3) information analysis and access, respectively. In addition, three smaller units will provide support in areas such as data quality and strategic planning. A transition team of EPA staff has been tasked with developing recommendations for the new office’s mission and priorities as well as its detailed organizational and reporting structure. In developing these recommendations, the transition team has consulted with the states, regulated industries, and other stakeholders to exchange views regarding the vision, goals, priorities, and initial projects for the office. One of the transition team’s key responsibilities is to make recommendations concerning which EPA units should move into the information office and in which of the three major organizational units they should go. To date, the transition team has not finalized its recommendations on these issues or on how the new office will operate and the staff it will need. Even though EPA has not yet determined which staff will be moved to the central information office, the transition team’s director told us that it is expected that the office will have about 350 employees. She said that the staffing needs of the office will be met by moving existing employees in EPA units affected by the reorganization. The director said that, once the transition team recommends which EPA units will become part of the central office, the agency will determine which staff will be assigned to the office. She added that staffing decisions will be completed by July 1999 and the office will begin functioning sometime in August 1999. The funding needs of the new office were not specified in EPA’s fiscal year 2000 budget request to the Congress because the agency did not have sufficient information on them when the request was submitted in February 1999. The director of the transition team told us that in June 1999 the agency will identify the anticipated resources that will transfer to the new office from various parts of EPA. The agency plans to prepare the fiscal year 2000 operating plan for the office in October 1999, when EPA has a better idea of the resources needed to accomplish the responsibilities that the office will be tasked with during its first year of operation. The transition team’s director told us that decisions on budget allocations are particularly difficult to make at the present time due to the sensitive nature of notifying managers of EPA’s various components that they may lose funds and staff to the new office. Furthermore, EPA will soon need to prepare its budget for fiscal year 2001. According to EPA officials, the Office of the Chief Financial Officer will coordinate a planning strategy this spring that will lead to the fiscal year 2001 annual performance plan and proposed budget, which will be submitted to the Office of Management and Budget by September 1999. The idea of a centralized information office within EPA has been met with enthusiasm in many corners—not only by state regulators, but also by representatives of regulated industries, environmental advocacy groups, and others. Although the establishment of this office is seen as an important step in improving how EPA collects, manages, and disseminates information, the office will face many challenges, some of which have thwarted previous efforts by EPA to improve its information management activities. On the basis of our prior and ongoing work, we believe that the agency must address these challenges for the reorganization to significantly improve EPA’s information management activities. Among the most important of these challenges are (1) obtaining sufficient resources and expertise to address the complex information management issues facing the agency; (2) overcoming problems associated with EPA’s decentralized organizational structure, such as the lack of agencywide information dissemination policies; (3) balancing the demand for more data with calls from the states and regulated industries to reduce reporting burdens; and (4) working effectively with EPA’s counterparts in state government. The new organizational structure will offer EPA an opportunity to better coordinate and prioritize its information initiatives. The EPA Administrator and the senior-level officials charged with creating the new office have expressed their intentions to make fundamental improvements in how the agency uses information to carry out its mission to protect human health and the environment. They likewise recognize that the reorganization will raise a variety of complex information policy and technology issues. To address the significant challenges facing EPA, the new office will need significant resources and expertise. EPA anticipates that the new office will substantially improve the agency’s information management activities, rather than merely centralize existing efforts to address information management issues. Senior EPA officials responsible for creating the new office anticipate that the information office will need “purse strings control” over the agency’s resources for information management expenditures in order to implement its policies, data standards, procedures, and other decisions agencywide. For example, one official told us that the new office should be given veto authority over the development or modernization of data systems throughout EPA. To date, the focus of efforts to create the office has been on what the agency sees as the more pressing task of determining which organizational components and staff members should be transferred into the new office. While such decisions are clearly important, EPA also needs to determine whether its current information management resources, including staff expertise, are sufficient to enable the new office to achieve its goals. EPA will need to provide the new office with sufficient authority to overcome organizational obstacles to adopt agencywide information policies and procedures. As we reported last September, EPA has not yet developed policies and procedures to govern key aspects of its projects to disseminate information, nor has it developed standards to assess the data’s accuracy and mechanisms to determine and correct errors. Because EPA does not have agencywide polices regarding the dissemination of information, program offices have been making their own, sometimes conflicting decisions about the types of information to be released and the extent of explanations needed about how data should be interpreted. Likewise, although the agency has a quality assurance program, there is not yet a common understanding across the agency of what data quality means and how EPA and its state partners can most effectively ensure that the data used for decision-making and/or disseminated to the public is of high quality. To address such issues, EPA plans to create a Quality Board of senior managers within the new office in the summer of 1999. Although EPA acknowledges its need for agencywide policies governing information collection, management, and dissemination, it continues to operate in a decentralized fashion that heightens the difficulty of developing and implementing agencywide procedures. EPA’s offices have been given the responsibility and authority to develop and manage their own data systems for the nearly 30 years since the agency’s creation. Given this history, overcoming the potential resistance to centralized policies may be a serious challenge to the new information office. EPA and its state partners in implementing environmental programs have collected a wealth of environmental data under various statutory and regulatory authorities. However, important gaps in the data exist. For example, EPA has limited data that are based on (1) the monitoring of environmental conditions and (2) the exposures of humans to toxic pollutants. Furthermore, the human health and ecological effects of many pollutants are not well understood. EPA also needs comprehensive information on environmental conditions and their changes over time to identify problem areas that are emerging or that need additional regulatory action or other attention. In contrast to the need for more and better data is a call from states and regulated industries to reduce data management and reporting burdens. EPA has recently initiated some efforts in this regard. For example, an EPA/state information management workgroup looking into this issue has proposed an approach to assess environmental information and data reporting requirements based on the value of the information compared to the cost of collecting, managing, and reporting it. EPA has announced that in the coming months, its regional offices and the states will be exploring possibilities for reducing paperwork requirements for EPA’s programs, testing specific initiatives in consultation with EPA’s program offices, and establishing a clearinghouse of successful initiatives and pilot projects. However, overall reductions in reporting burdens have proved difficult to achieve. For example, in March 1996, we reported that while EPA was pursuing a paperwork reduction of 20 million hours, its overall paperwork burden was actually increasing because of changes in programs and other factors. The states and regulated industries have indicated that they will look to EPA’s new office to reduce the burden of reporting requirements. Although both EPA and the states have recognized the value in fostering a strong partnership concerning information management, they also recognize that this will be a challenging task both in terms of policy and technical issues. For example, the states vary significantly in terms of the data they need to manage their environmental programs, and such differences have complicated the efforts of EPA and the states to develop common standards to facilitate data sharing. The task is even more challenging given that EPA’s various information systems do not use common data standards. For example, an individual facility is not identified by the same code in different systems. Given that EPA depends on state regulatory agencies to collect much of the data it needs and to help ensure the quality of that data, EPA recognizes the need to work in a close partnership with the states on a wide variety of information management activities, including the creation of its new information office. Some partnerships have already been created. For example, EPA and the states are reviewing reporting burdens to identify areas in which the burden can be reduced or eliminated. Under another EPA initiative, the agency is working with states to create data standards so that environmental information from various EPA and state databases can be more readily shared. Representatives of state environmental agencies and the Environmental Council of the States have expressed their ideas and concerns about the role of EPA’s new information office and have frequently reminded EPA that they expect to share with EPA the responsibility for setting that office’s goals, priorities, and strategies. According to a Council official, the states have had more input to the development of the new EPA office than they typically have had in other major policy issues and the states view this change as an improvement in their relationship with EPA. Collecting and managing the data that EPA requires to manage its programs have been major long-term challenges for the agency. The EPA Administrator’s recent decision to create a central information office to make fundamental agencywide improvements in data management activities is a step in the right direction. However, creating such an organization from disparate parts of the agency is a complex process and substantially improving and integrating EPA’s information systems will be difficult and likely require several years. To fully achieve EPA’s goals will require high priority within the agency, including the long-term appropriate resources and commitment of senior management. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO discussed the Environmental Protection Agency's (EPA) information management initiatives, focusing on the: (1) status of EPA's efforts to create a central office responsible for information management, policy, and technology issues; and (2) major challenges that the new office needs to address in order to achieve success in collecting, using, and disseminating environmental information. GAO noted that: (1) EPA estimates that its central information office will be operational by the end of August 1999 and will have a staff of about 350 employees; (2) the office will address a broad range of information policy and technology issues, such as improving the accuracy of EPA's data, protecting the security of information that EPA disseminates over the Internet, developing better measures to assess environmental conditions, and reducing information collection and reporting burdens; (3) EPA recognizes the importance of developing an information plan showing the goals of the new office and the means by which they will be achieved but has not yet established milestones or target dates for completing such a plan; (4) although EPA has made progress in determining the organizational structure for the new office, it has not yet finalized decisions on the office's authorities, responsibilities, and budgetary needs; (5) the agency has not performed an analysis to determine the types and the skills of employees that will be needed to carry out the office's functions; (6) EPA officials told GAO that decisions on the office's authorities, responsibilities, budget, and staff will be made before the office is established in August 1999; (7) on the basis of GAO's prior and ongoing reviews of EPA's information management problems, GAO believes that the success of the new office depends on the agency's addressing several key challenges as it develops an information plan, budget, and organizational structure for that office; and (8) most importantly, EPA needs to: (a) provide the office with the resources and the expertise necessary to solve the complex information management, policy, and technology problems facing the agency; (b) empower the office to overcome organizational challenges to adopting agencywide information policies and procedures; (c) balance the agency's need for data on health, the environment, and program outcomes with the call from the states and regulated industries to reduce their reporting burdens; and (d) work closely with its state partners to design and implement improved information management systems.

The White House Data Base was developed in 1994 to facilitate contacts with individuals and organizations who are important to the Presidency. It replaced a number of existing data bases with a single system which was intended to be easy to use and provide a greater level of service to a variety of users. The system has been operational since August 1995. Among other things, the data base is used for developing invitation lists for White House events and for providing information to help prepare thank you notes, holiday cards, and other correspondence. As such, the information contained on the data base ranges from names, addresses, phone numbers, social security numbers, contributor information, and dates of birth to individual relationships to the First Family and political affiliations. According to the White House, the data base contains personal information on about 200,000 individuals. In developing the data base, the White House used a widely accepted approach—Joint Application Development. Under this approach, users meet with programmers in a more intensive design session than usual—with the goals of eliminating rewrites of user interfaces and paving the way for faster application development. Development of the data base began with a series of technical interviews with potential users to determine, among other things, the sources of the data for the data base and the extent to which the data would be shared with nonfederal entities or individuals. Once these interviews were concluded, design and development elements were pursued on several fronts. First, potential users were asked to review functional aspects of the system and provide feedback. Second, the system architecture was developed and implemented based on detailed requirements and joint design elements provided by the customers and others. The data base operates on and is accessible through the White House’s local area network, or LAN. While more than 1,600 users are authorized to access the LAN, less than 150 users have been given access to the data base and even fewer actually use the data base. The products supporting the White House LAN, operating system, and data base system are widely used in the government and commercial sectors. The LAN uses version 3.12 of Novell’s network operating system. The data base runs on Microsoft’s Windows NT operating system using Sybase’s System 10 data base management system. Sybase’s System 10 is a relational data base management system, which is a system that allows both end-users and application programmers to store data in, and retrieve data from, data bases that are perceived as a collection of relations or tables. The data base is comprised of 125 tables. Data is input to and retrieved from these tables using simple screens and drop-down menus. Sybase’s System 10 is built with published and readily available interface specifications. It is open to the extent that anyone can write a program that will connect to the server. This is unlike traditional proprietary data base management systems, which could be accessed only with vendor-supplied tools or programs written with vendor-specific languages and compilers. In developing the data base, the White House acquired well-established, commercially available products and created a system that users we interviewed were generally satisfied with. However, as I will discuss in more detail, the design of the data base limits system performance. Further, the system—while having in place some internal controls—needs additional controls to assure the integrity and accuracy of data. As noted earlier, data base users primarily use the data base as a tool for maintaining contact with individuals and organizations important to the Presidency. Users told us that they were generally satisfied with the system. Less than 100 White House staff actually use the system, and only about 25 make moderate to heavy use (relative to other users) of the system—with the heaviest users representing the White House Social Office, Personal Correspondence Office, and Outreach Office, as well as system administrators. We examined user accounts and interviewed those staff making heavy use of the system in terms of amount of data both input to and read from the system. These included two staff in the Social Office, one in the Outreach Office, two on the Personal Correspondence staff, the data base data administrator, and a Sybase system administrator. We also interviewed four other business users and a system administrator who represent less heavy users of the system. Social Office personnel use the system to assist in developing invitation lists and planning state dinners and other events. Personal Correspondence personnel use the data base to help compose letters for the President. In doing so, they retrieve information from the data base on addresses, names of family members, White House events attended, and how the correspondent knows the President. The Outreach user we interviewed entered data into the data base for use in generating lists of holiday card recipients. Many users supplement the data base with information from manually accessed address lists. All those users we interviewed who had used the prior systems believed that the new system was better, and—for some users—the system is critical to their ability to complete their tasks. System administrators—who account for about 10 percent of all people who have accessed the data base—manage the system and maintain data base information. For example, they perform system backups, troubleshoot, and perform routine maintenance in the normal course of managing the system. The individual components supporting the data base—the network, server, and data base engine—are individually well-regarded and could be considered to be leading edge components for business applications similar to those run by the White House. However, the strength of the individual system components has been diminished by the design of the data base itself. Specifically, in developing the system, the White House attempted to meet all user requirements for a large array of potential information needs. Rather than take advantage of the relational data base capabilities of Sybase, the designers established a one-to-one relationship between the logical and physical attributes of the data base resulting in 125 tables. The data base operates more as an index sequential data base where relationships between and among data elements have to be established across many tables. This contributes to increased system overhead (requires the system to process additional steps) and thus taxes the performance capabilities of the system. Because the data base has relatively few users and is an improvement over what users had been using, individual users have probably not been affected by the data base design. However, if demand increased, system performance could unnecessarily degrade. In order to minimize performance impact, system administrators have made compromises which affect the data base’s internal controls. First, system administrators told us that turning on the internal audit trail, which I will discuss later, would seriously slow down system performance; and that to turn on the audit trail would take several staff weeks of programming effort to minimize the impact on overall system performance. Second, system administrators have chosen not to use the referential integrity capability that Sybase offers because of performance issues. Referential integrity is critical to any data base to assure that necessary checks are in place to limit inappropriate data input and assure that output is accurate. For the White House Data Base, referential integrity is implemented through the application itself. Because of the complexity of the application structure, it is difficult to assure that all edit checks are in place and work properly across the application. We found that some checks are not operational which in turn leads to a higher probability of inaccurate information being input or retrieved from the system. Good business systems operate in a controlled environment to ensure that data within these systems is accurate, that data output is reliable, and that data integrity is assured so that only authorized users have access to the data and that such access is appropriate to their needs. To provide such assurance, an organization needs well-articulated policies and procedures, good training, and an ability to ensure compliance with established processes and procedures. For the government, these concepts are embodied in the Office of Management and Budget’s Circular A-130 which lays out the need for policies, rules of behavior governing system use, training, and the need to incorporate good controls. Circular A-130 states that accountability is normally accomplished by identifying and authenticating users and subsequently tracing actions on the system to the user who initiated them. As a system containing sensitive information on up to 200,000 individuals, and, as a system that is important to meet the work needs of several White House offices, data base users and managers need to apply the principles of A-130 to system operations. We found that the White House has taken several positive steps to create a controlled environment. For example: Personalized training is available to all users. Users are required to sign a document stating that they will take measures to protect information including establishing and protecting passwords, logging out when leaving their computers, and reporting unauthorized access to the system. Password access is required to enter the system and a warning screen appears to inform the user that information within the data base is for official use only. The data base has an effective defense against outside intruders or “hackers” breaking into the system. Controls have been established within the system to limit access to certain portions of the data base to only those with a need to know. Additionally, only a limited number of users have authority to print reports. Even with these processes in place, we found that the data base requires additional measures before data integrity and operational effectiveness can be assured. For example: Users do not have well-documented processes and procedures for how and when to use the data base. Written documentation, reinforced with training and operational processes, would provide a better basis for assuring system managers that the data base was being used effectively and that all users were appropriately keeping the data base current. While users were trained individually by system administrators or other users, only one user out of the nine business users that we interviewed reported having a users manual. None of these users reported having training concerning the security of the system. Such guidance can help ensure that users are familiar with the system and are entering information correctly. In talking with users we found that most everyone could navigate the system adequately; however, we also found that some duplicate information on individuals was being entered into the system and that some information was being entered into the wrong field. This causes some data base tables to contain more information than necessary and slows down the processing of information. Although the data base has established security policies, procedures necessary to make them effective have not been well-documented. For example, the system does not require frequent changes in passwords. Only one of the applications users we interviewed has changed their password since the system was initiated. Although controls exist to limit printing of reports, any user having general netware printing capability can print the screen contents. Additionally, all users have the ability to download screen content onto an electronic notebook which could then be mailed electronically to a third party. None of the users we interviewed stated that they were aware of this capability. Additionally, White House officials told us that every month they review a sample of outgoing e-mail traffic to identify inappropriate use of the electronic mail system and to comply with records management requirements. Most importantly, there is no audit trail. Although Sybase 10 has this capability, we were told it has not been turned on because it would inhibit system performance. The Sybase audit capability would allow system administrators to monitor and react to attempts to log on and log off the system; execution of update, delete, and insert operations; restarts of the system; execution of system administration commands; and changes to system tables. Without this feature, data base administrators are limited in their ability to ensure that users are properly accessing and using the system. Mr. Chairman and Members of the Subcommittee this completes my testimony. I will be happy to answer any questions you may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO reviewed the White House database, focusing on its users and operational components. GAO noted that: (1) users are generally satisfied with the database as a tool for maintaining information important to the Presidency; (2) fewer than 100 White House staff use the database, and the 25 heaviest users represent three White House offices and systems administrators; (3) the Social Office uses the database to develop invitation lists and plan state dinners and other events, the Personal Correspondence Office uses the database to help compose Presidential letters, and the Outreach Office uses the database for generating lists of holiday card recipients; (4) these users believe that the database is critical in performing their tasks, but the database's design is limited because it does not employ certain relational database capabilities; (5) because of additional processing steps, system performance will degrade if demand increases; (6) systems administrators have made compromises to minimize performance impacts that affect data integrity and audit trails; (7) the White House has taken actions to ensure a controlled environment by providing personalized user training, requiring signed ethics documents and passwords, providing anti-hacker defense systems, and limiting user access; and (8) to ensure data integrity and operational effectiveness, the White House needs to document systems security policies and procedures, limit report printing, and establish an audit trail for systems administrators to monitor database operations.

HCFA’s vision, which we support, is for a single, unified system to replace the nine current systems now used by Medicare, the nation’s largest health insurer, serving about 37 million Americans. The goals of MTS are to better protect program funds from waste, fraud, and abuse; allow better oversight of Medicare contractors’ operations; improve service to beneficiaries and providers; and reduce administrative expenses. At present, HCFA expects MTS to be fully operational in September 1999, and to process over 1 billion claims and pay $288 billion in benefits per year by 2000. These are ambitious goals, and we realize that developing such a system is complex and challenging. Currently, when legislative or administrative initiatives result in revised payment or coverage policies, each of the nine automated systems maintained by Medicare contractors to process claims must be modified. An integrated system would eliminate the need for such cumbersome and costly multiple processes. In January 1994, HCFA awarded a contract to GTE Government Systems Corporation to design, develop, and implement the new automated system for processing claims. Two related contracts were awarded: to Intermetrics, Inc., in April 1994 for what is known as independent verification and validation, or IV&V—a separate technical check on GTE’s work; and to SETA Corporation in September 1995 for systems testing. Over the last 12 years, the federal government has spent more than $200 billion on information technology, and we have evaluated hundreds of these projects. On the basis of this work, we have determined that two basic, recurring problems constrain the ability of organizations to successfully develop large systems: (1) failure to adequately select, plan, prioritize, and control information system projects; and (2) failure to take advantage of business process improvements that can significantly reduce costs, improve productivity, and provide better services to customers. These problems have often led to meager results in federal agency efforts to design, develop, and acquire complex information systems. For example, after investing over 12 years of effort, the Federal Aviation Administration (FAA) chose to cut its losses in its problem-plagued Advanced Automation System by cancelling or extensively restructuring elements of this modernization of the nation’s air traffic control system. The reasons for FAA’s problems included the failure to (1) accurately estimate the project’s technical complexity and resource requirements, (2) finalize system requirements, and (3) adequately oversee contractor activities. Similarly, our work on IRS’ Tax Systems Modernization, designed to automate selected tax-processing functions, identified several weaknesses. For example, IRS lacked (1) a disciplined process for managing definition of requirements, and (2) a management process for controlling software development. These problems caused significant rework and delays. Last year, to help federal agencies improve their chances of success, we completed a study of how successful private and public organizations reached their goals of acquiring information systems that significantly improved their ability to carry out their missions. Our report describes an integrated set of fundamental management practices that were instrumental in producing success. The active involvement of senior managers, focusing on minimizing project risks and maximizing return on investment, was essential. To accomplish these objectives, senior managers in successful organizations consistently followed these practices—which have become known as best practices—to ensure that they received information needed to make timely and appropriate decisions. Among others, one key practice is for executives to manage information systems as investments rather than expenses. This requires using disciplined investment control processes that provide quantitative and qualitative information that senior managers can use to continuously monitor costs, benefits, schedules, and risks; and to ensure that structured systems-development methodologies are used throughout the system’s life cycle. A consensus has emerged within the administration and the Congress that better investment decisions on information technology projects are needed to help the government improve service. Important changes recently made to several laws and executive policy guidance are instituting best-practice approaches of leading organizations into the federal government. This month, the Office of Management and Budget will issue guidance that describes an analytical framework for making information technology investment decisions. Developed in cooperation with GAO, this guidance calls for agencies to implement management practices to select, control, and evaluate information technology investments throughout their life cycles. HCFA has not yet instituted a set of well-defined investment control processes to measure the quality of development efforts and monitor progress and problems. This situation has contributed to a series of problems related to requirements-definition, schedule, and costs; these problems raise concerns that MTS may suffer the same fate as many other complex systems—extensive delays, large cost increases, and the inability to achieve potential benefits. First, HCFA has not sufficiently followed sound practices in defining MTS project requirements. As a result, HCFA has twice redirected the approach and, 2 years into the contract, requirements definition at the appropriate level of specificity has not been completed. Requirements, which are defined during the analysis phase of a project, document the detailed functions and processes the system is expected to perform and the performance level to be achieved. They are intended to correct deficiencies in the current system and take advantage of opportunities to improve program economy, efficiency, and service. Because requirements provide the foundation for designing, developing, testing, and implementing the system, it is critical that they be precisely defined to avoid ambiguity and overlap, and that they completely and logically describe all features of the planned system. Using an appropriate methodology to define requirements significantly reduces risk that requirements defects will cause technical problems. Originally, HCFA’s plans called for GTE to document the current systems’ requirements, while HCFA staff defined new or future requirements for MTS. However, in September 1994, HCFA concluded that GTE’s analysis of the current systems did not contain enough detail to fully describe the current systems’ requirements. HCFA then directed GTE to provide additional detail. In September 1995, HCFA concluded that the products GTE was developing were too detailed, and again directed GTE to refocus its efforts—this time, however, on assisting HCFA staff in defining future MTS requirements. On the basis of our experience in evaluating other systems, such multiple redirections in the analysis phase of a major project indicate that HCFA’s process to control requirements lacks discipline. HCFA currently lacks an effective process for managing requirements, and has not provided adequate guidance to staff responsible for defining requirements. These deficiencies have also been cited by the IV&V contractor as an area of significant risk. Because of problems in completing the definition of requirements, and HCFA’s plans to implement a fully functional MTS in September 1999, HCFA is proceeding into the next phase of system development, the design phase, before requirements have been completed. HCFA plans to select an MTS design alternative by the end of this calendar year, but requirements are not scheduled to be completed until September 1996. Because design alternatives are used to determine how the system will be structured, if the alternatives do not reflect key requirements, the system’s future capabilities may be seriously constrained. The IV&V contractor pointed out that HCFA’s plan to select the system design in parallel with defining system requirements also increases risks that the system will not meet important goals. HCFA officials told us they believe that MTS requirements are sufficiently defined to prepare high-level system-design alternatives, but the IV&V contractor disagrees. To support critical design decisions, requirements need to be sufficiently detailed to include such functions and processes as performance levels and response times. When we reviewed HCFA’s preliminary set of requirements, we found that many of them did not contain enough detail. Second, HCFA’s development schedule for MTS contains significant overlap—or concurrency—among the various system-development phases: analysis, design, programming, testing, validation, and implementation. As shown in figure 1, the April 1994 MTS schedule—an early estimate by HCFA—is used only to illustrate the sequential nature of these phases. The November 1995 schedule shows extensive concurrency; for example, the analysis and design phases are occurring simultaneously during the period from July 1994 to September 1996. In our January 1994 report on MTS, we stated that if a contractor advances too far into a succeeding system-development phase before sufficient progress has been made in the previous phase, the risk that technical problems will occur is significantly increased. Senior HCFA officials recently told us that the MTS schedule contains concurrency because it is important to deploy the system before the end of the century; otherwise, significant costs would be incurred to modify existing systems. What is needed is quantifiable information on this cost, compared with an assessment of the risks of concurrency. HCFA has not, however, implemented a formal process to assess and manage system-development risks. The IV&V contractor has also cited this lack of a formal risk-assessment process as a problem. In addition, while HCFA’s MTS schedule has been revised several times because of the redirection of requirements definition in the analysis phase, the initial and final system-implementation dates have remained largely unchanged. As a result, the time scheduled to complete the rest of the system-development phases to meet those dates is now significantly compressed. For example, because HCFA did not adjust the initial operating capability date, it is now scheduled, at one point in a 1-year period, to work concurrently on the remaining development phases—design, programming, testing, and validation. On the basis of our previous work on large systems-development efforts, we believe that failure to allow for sufficient time to complete system-development phases increases risk and will likely result in reduced systems capability. Moreover, HCFA has not developed an integrated schedule that reflects both HCFA and contractor activities, work products, and time frames needed to perform these activities. Such a schedule provides an important tool for closely monitoring progress and problems in completing various activities. Without detailed insight about the actual status of all development activities, management will not have the information it needs to make timely decisions. HCFA’s IV&V contractor also cited concerns about the lack of an integrated schedule baseline for MTS. HCFA officials agreed that such a schedule is important. Finally, HCFA has not sufficiently developed disciplined processes to adequately monitor progress in achieving cost and benefit objectives, which are important to managing projects as investments. The estimated MTS project costs, pegged by HCFA at $151 million in 1992, have not been updated since then, and HCFA is not tracking internal costs associated with the project, such as personnel, training, and travel. According to HCFA officials, they plan to update their cost estimate next year, to reflect their current understanding of MTS’ capabilities. Similarly, except for estimated administrative savings of $200 million a year during the first 6 years of operation (1997-2002), HCFA has not yet quantified other important expected benefits of MTS, such as targets for reducing fraud, waste, and abuse, and improving services to beneficiaries and providers. Without current information on costs and potential benefits, HCFA executives will not be in the best position to realistically monitor performance or identify and maximize the system’s true return on investment. We have seen an inescapable pattern in agencies’ development of information systems: even on a small scale, those that are not developed according to sound practices encounter major, expensive problems later on. The larger the project, the bigger the risk. It takes serious, sustained effort and disciplined management processes to effectively manage system development. Effective oversight greatly reduces exposure to risk; without it, risk is dramatically and needlessly increased. The risks we see in the development of MTS can be substantially reduced if HCFA management implements some of the best practices that have been proven effective in other organizations: managing systems as investments, changing information management practices, creating line manager ownership, better managing resources, and measuring performance. HCFA still has time to correct these deficiencies. We are encouraged by HCFA’s expression of interest in learning about how to implement the best practices in systems development used by successful organizations, and look forward to working with them. This concludes our statement, Mr. Chairmen. We will be happy to respond to any questions you or other members of the subcommittees may have at this time. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

GAO discussed the Health Care Financing Administration's (HCFA) approach to managing the Medicare Transaction System (MTS). GAO noted that: (1) MTS is designed to unify the nine Medicare claims-processing systems, improve Medicare contractor oversight, improve services to beneficiaries and providers, reduce administrative expenses, and better protect Medicare program funds from waste, fraud, and abuse; (2) although HCFA plans to mitigate large scale problems by implementing MTS in increments and design MTS to allow for future modifications, the lack of an effective management approach exposes the system to undue risks; (3) HCFA has not adequately defined MTS project requirements, has not identified significant system-development overlap, and lacks reliable cost and benefit information; and (4) HCFA could substantially reduce MTS development risks by implementing some of the best practices that have been proven effective in other organizations, such as changing HCFA information management practices, creating line manager ownership, better managing MTS resources, and measuring MTS project performance.

According to the State Department’s 2002 Annual Performance Plan, the department’s counterterrorism goals are to reduce the number of terrorist attacks, bring terrorists to justice, reduce or eliminate state-sponsored terrorist acts, delegitimize the use of terror as a political tool, enhance the U.S. response to terrorism overseas, and strengthen international cooperation and operational capabilities to combat terrorism. The Secretary of State is responsible for coordinating all U.S. civilian departments and agencies that provide counterterrorism assistance overseas. The Secretary also is responsible for managing all U.S. bilateral and multilateral relationships intended to combat terrorism abroad. State requested over $2.3 billion to combat terrorism in fiscal year 2003. This includes more than $1 billion for overseas embassy security and construction, as well as for counterterrorism assistance and training to countries cooperating with the global coalition against terrorism. Table 1 provides a breakdown of State’s funding to combat terrorism. By contrast, State spent about $1.6 billion in fiscal year 2001 and received about $1.8 billion to combat terrorism in fiscal year 2002. State received an additional $203 million through the Emergency Response Fund as part of the $40 billion appropriated by the Congress in response to the September 11, 2001, terrorist attacks against the United States. The Office of Management and Budget reported that determining precise funding levels associated with activities to combat terrorism is difficult because departments may not isolate those activities from other program activities. Some activities serve multiple purposes—for example, upgrades to embassy security help protect against terrorism as well as other crimes. The State Department conducts multifaceted activities in an effort to prevent terrorist attacks on Americans abroad. For example, to protect U.S. officials, property, and information abroad, the Bureau of Diplomatic Security provides local guards for embassies and armored vehicles for embassy personnel (see fig. 2). In addition, it provides undercover teams to detect terrorist surveillance activities. Following the 1998 embassy bombings in Africa, State upgraded security for all missions, which included strengthening building exteriors, lobby entrances, and the walls and fences at embassy perimeters (see fig. 3). The upgrades also included closed-circuit television monitors, explosive detection devices, walk- through metal detectors, and reinforced walls and security doors to provide protection inside the embassy. In addition, State plans to replace some existing embassies with buildings that meet current security standards, such as having a 100-foot setback from streets surrounding embassies. State also has programs to protect national security information discussed at meetings or stored on computers. These programs include U.S. Marine security guards controlling access to embassies, efforts to prevent foreign intelligence agencies from detecting emanations from computer equipment, and computer security programs. State has several programs to help warn Americans living and traveling abroad against potential threats, including those posed by terrorists. For example, to warn Americans about travel-related dangers, in fiscal year 2001 the Bureau of Consular Affairs issued 64 travel warnings, 134 public announcements, and 189 consular information sheets. In addition, missions employ a “warden system” to warn Americans registered with an embassy of threats against their security. The system varies by mission but uses telephone, E-mail, fax, and other technologies as appropriate. Finally, the Bureau of Diplomatic Security manages the Overseas Security Advisory Councils program. The councils are a voluntary, joint effort between State and the private sector to exchange threat- and security-related information. Councils currently operate in 47 countries. In addition, State manages and funds programs to train foreign government and law enforcement officials to combat terrorism abroad. These programs include the following: the Antiterrorism Assistance Program, implemented by the Bureau of Diplomatic Security, to enhance the antiterrorism skills of law enforcement and security personnel in foreign countries; the International Law Enforcement Academies, managed by the Bureau for International Narcotics and Law Enforcement Affairs, to provide law enforcement training in four locations around the world. The Departments of State, the Treasury, and Justice—including the Bureau of Diplomatic Security, Federal Bureau of Investigation, and other U.S. law enforcement agencies—provide the on-site training; the Department of Justice's Overseas Prosecutorial Development and Assistance Training and the International Criminal Investigation Training Assistance Program. The State Department provides policy oversight and funds this training, which is intended to build rule-of-law institutions, and includes general law enforcement and anticrime training for foreign nationals. State conducts numerous programs and activities intended to disrupt and destroy terrorist organizations. These programs and activities rely on military, multilateral, economic, law enforcement, and other capacities, as the following examples illustrate: The Bureau of Political-Military Affairs coordinates with Department of Defense on military cooperation with other countries. It has been State’s liaison with the coalition supporting Operation Enduring Freedom, processing 72 requests for military assistance from coalition partners since September 11, 2001. The Bureau of International Organization Affairs helped craft and adopt United Nations Security Council Resolution 1373, obligating all member nations to fight terrorism and report on their implementation of the resolution. It also assisted with resolutions extending U.N. sanctions on al Qaeda and the Taliban and on certain African regimes, including those whose activities benefit terrorists. The Department of State’s Office of the Coordinator for Counterterrorism, the Bureau of International Narcotics and Law Enforcement, and the Economic Bureau work with the Department of the Treasury and other agencies to stem the flow of money and other material support to terrorists. According to the State Department, since September 11, the United States has blocked $34.3 million in terrorist related assets. The Office of the Legal Advisor pursues extradition and mutual legal assistance treaties with foreign governments. The Office of the Legal Advisor also works with the U.N. and with other nations in drafting multilateral agreements, treaties, and conventions on counterterrorism. The Bureau of Diplomatic Security, working with the Department of Justice, cooperates with foreign intelligence, security, and law enforcement entities to track and capture terrorists in foreign countries, assist in their extradition to the United States, and block attempted terrorist attacks on U.S. citizens and assets abroad. The Office of the Coordinator for Counterterrorism, in conjunction with the Department of Justice and other agencies, coordinates State’s role in facilitating the arrest of suspected terrorists through an overseas arrest, known as a rendition, when the United States lacks an extradition treaty. The Bureau of Diplomatic Security manages the Rewards for Justice Program. This program offers payment for information leading to the prevention of a terrorist attack or the arrest and prosecution of designated individuals involved in international terrorism. These rewards reach up to $25 million for those involved in the September 11 attacks. The Bureau of Intelligence and Research prepares intelligence and threat reports for the Secretary of State, high-level department officials, and ambassadors at U.S. missions. It also monitors governmentwide intelligence activities to ensure their compatibility with U.S. foreign policy objectives related to terrorism, and it seeks to expand the sharing of interagency data on known terrorist suspects. The State Department is responsible for leading the U.S. response to terrorist incidents abroad. This includes measures to protect Americans, minimize incident damage, terminate terrorist attacks, and bring terrorists to trial. Once an attack has occurred, State’s activities include measures to alleviate damage, protect public health, and provide emergency assistance. The Office of the Coordinator for Counterterrorism facilitates the planning and implementation of the U.S. government response to a terrorist incident overseas. In a given country, the ambassador would act as the on-scene coordinator for the response effort. (See figure 4.) In addition, several other bureaus respond to the aftermath of a terrorist attack and help friendly governments prepare to respond to an attack by conducting joint training exercises. The Bureau of Political-Military Affairs is tasked with helping to prepare U.S. forces, foreign governments, and international organizations to respond to the consequences of a chemical, biological, radiological, or nuclear incident overseas. For example, the bureau is developing a database of international assets that could be used to respond to the consequences of a terrorist attack using weapons of mass destruction. It also participates in major interagency international exercises, which are led by DOD. In addition, the bureau assisted in the first operational deployment of a U.S. consequence management task force, working with the DOD regional command responsible for conducting the war in Afghanistan. Several bureaus and offices deploy emergency response teams to respond to terrorist attacks. For example, the Office of the Coordinator for Counterterrorism deploys multi-agency specialists in the Foreign Emergency Support Team (FEST) to assist missions in responding to ongoing terrorist attacks. For example, at the request of the Ambassador, the FEST can be dispatched rapidly to the mission. As one component of this team, the Bureau of Political-Military Affairs can deploy a Consequence Management Support Team to assist missions in managing the aftermath of terrorist attacks. In addition, the Bureau of Overseas Buildings Operations Emergency Response Team helps secure embassy grounds and restore communications following a crisis. See appendix II for a comprehensive list of State’s programs and activities to combat terrorism. The State Department is responsible for coordinating all federal agencies’ efforts to combat terrorism abroad. These include the Departments of Defense, Justice, and the Treasury; the various intelligence agencies; the FBI and other law enforcement agencies; and USAID. In addition, State coordinates U.S. efforts to combat terrorism multilaterally through international organizations and bilaterally with foreign nations. State uses a variety of methods to coordinate its efforts to combat terrorism abroad, including the following: In Washington, D.C., State participates in National Security Council interagency working groups, issue-specific working groups, and ad hoc working groups. For example, the Office of the Coordinator for Counterterrorism maintains policy oversight and provides leadership for the interagency Technical Support Working Group—a forum that identifies, prioritizes, and coordinates interagency and international applied research and development needs and requirements to combat terrorism. At U.S. embassies, State implements mission performance plans that coordinate embassy activities to combat terrorism, country team subgroups on terrorism, emergency action committees to organize embassy response to terrorist threats and incidents, and ad hoc working groups. For example, selected embassies have country team subgroups dedicated to law enforcement matters, chaired by the Deputy Chief of Mission. Working with related bureaus and agencies such as the Regional Security Office, FBI Legal Attaché, and Treasury Department Financial Attaché, these subgroups coordinate efforts to combat terrorism among the various agencies overseas. In Washington, D.C., and elsewhere, State exchanges personnel with other agencies for liaison purposes. In Washington, D.C., for example, State personnel serve as liaisons at the CIA’s Counter-Terrorism Center. The department also provides each U.S. regional military command with a Political Advisor, who helps the respective commanders coordinate with State Department Headquarters and with U.S. embassies on regional and bilateral matters, including efforts to combat terrorism. We received written comments from the Department of State that are reprinted in appendix III. State wrote that the report is a “useful guide” and “good outline” of State’s activities and roles in the campaign against terrorism. State noted that there are many more often intangible and hard- to-measure actions taking place as part of the department’s contribution to fighting terrorism. State also provided technical comments, which we incorporated where appropriate. We are sending copies of this report to interested congressional committees and to the Secretary of State. We will make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4128. Another GAO contact and staff acknowledgments are listed in appendix IV of this report. The Department of State coordinates U.S. government efforts to combat terrorism abroad. Within the department, multiple bureaus and offices manage programs and activities to combat terrorism. State also works with several U.S. and foreign government agencies in carrying out these programs and activities. Table 2 presents the programs and activities and the bureaus responsible for managing them. The table also presents information about some of the U.S. government agencies with which State cooperates. Table 2 describes: the strategic framework of State’s efforts to combat terrorism abroad; State’s programs and activities to prevent terrorism abroad; State’s programs and activities to disrupt and destroy terrorist State’s programs and activities to respond to terrorist incidents abroad. In addition to the contact named above, Edward George, Addison Ricks, Steve Caldwell, Mark Pross, James Lawson, Lori Kmetz, Yolanda Elserwy, Reid Lowe, and Cheryl Weissman made key contributions to this report. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. 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Efforts to combat terrorism have become an increasingly important part of government activities. These efforts have also become important in the United States' relations with other countries and with international organizations, such as the United Nations (U.N.). The Department of State is charged with coordinating these international efforts and protecting Americans abroad. State has helped direct the U.S. efforts to combat terrorism abroad by building the global coalition against terrorism, including providing diplomatic support for military operations in Afghanistan and other countries. State has also supported international law enforcement efforts to identify, arrest, and bring terrorists to justice, as well as performing other activities intended to reduce the number of terrorist attacks. The State Department conducts multifaceted activities in its effort to prevent terrorist attacks on Americans abroad. For Americans traveling and living abroad, State issues public travel warnings and operates warning systems to convey terrorism-related information. For American businesses and universities operating overseas, State uses the Overseas Security Advisory Councils--voluntary partnerships between the State Department and the private sector--to exchange threat information. To disrupt and destroy terrorist organizations abroad, State has numerous programs and activities that rely on military, multilateral, economic, law enforcement, intelligence, and other capabilities. State uses extradition treaties to bring terrorists to trial in the United States and cooperates with foreign intelligence, security, and law enforcement entities to track and capture terrorists in foreign countries. If the United States has no extradition agreements with a country, then State, with the Department of Justice, can work to obtain the arrest of suspected terrorist overseas through renditions. The State Department leads the U.S. response to terrorist incidents abroad. This includes diplomatic measures to protect Americans, minimize damage, terminate terrorist attacks, and bring terrorists to justice. To coordinate the U.S. effort to combat terrorism internationally, State uses a variety of mechanisms to work with the Departments of Defense, Justice, and the Treasury; the intelligence agencies; the Federal Bureau of Investigation; and others. These mechanisms include interagency working groups at the headquarters level in Washington, D.C., emergency action committees at U.S. missions overseas, and liaison exchanges with other government agencies.

In August 1993, the Congress enacted the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993, P.L. 103-66), which established the EZ/EC program. The act specified that an area to be selected for the program must meet specific criteria for characteristics such as geographic size and poverty rate and must prepare a strategic plan for implementing the program. The act also authorized the Secretary of Housing and Urban Development and the Secretary of Agriculture to designate the EZs and ECs in urban and rural areas, respectively; set the length of the designation at 10 years; and required that nominations be made jointly by the local and state governments. The act also amended title XX of the Social Security Act to authorize the special use of Social Services Block Grant (SSBG) funds for the EZ program. The use of SSBG funds was expanded to cover a range of economic and social development activities. Like other SSBG funds, the funds allotted for the EZ program are granted by the Department of Health and Human Services (HHS) to the state, which is fiscally responsible for the funds. HHS’ regulations covering block grants (45 C.F.R. part 96) provide maximum fiscal and administrative discretion to the states and place full reliance on state law and procedures. HHS has encouraged the states to carry out their EZ funding responsibilities with as few restrictions as possible under the law. After the state grants the funds to the EZ or the city, the EZ can draw down the funds through the state for specific projects over the 10-year life of the program. The Clinton administration announced the EZ/EC program in January 1994. The federal government received over 500 nominations for the program, including 290 nominations from urban communities. On December 21, 1994, the Secretaries of Housing and Agriculture designated the EZs and ECs. All of the designated communities will receive federal assistance; however, as established by OBRA 1993, the EZs are eligible for more assistance through grants and tax incentives than the ECs. After making the designations, HUD issued implementation guidelines describing the EZ/EC program as one in which (1) solutions to community problems are to originate from the neighborhood up rather than from Washington down and (2) progress is to be based on performance benchmarks established by the EZs and ECs, not on the amount of federal money spent. The benchmarks are to measure the results of the activities described in each EZ’s or EC’s strategic plan. When we issued our December 1996 report, all six of the urban EZs had met the criteria defined in OBRA 1993, developed a strategic plan, signed an agreement with HUD and their respective states for implementing the program, signed an agreement with their states for obtaining the EZ/EC SSBG funds, drafted performance benchmarks, and established a governance structure. However, the EZs differed in their geographic size, population, and other demographic characteristics, reflecting the selection criteria. In addition, the local governments had chosen different approaches to implementing the EZ program. Atlanta, Baltimore, Detroit, New York, and Camden had each established a nonprofit corporation to administer the program, while Chicago and Philadelphia were operating through the city government. At the state level, the types of agencies involved and the requirements for drawing down the EZ/EC SSBG funds differed. HHS awarded the funds to the state agency that managed the regular SSBG program unless the state asked HHS to transfer the responsibility to a state agency that dealt primarily with economic development. Consequently, the funds for Atlanta and New York pass through their state’s economic development agency, while the funds for the other EZs pass through the state agency that manages the regular SSBG program. Each urban EZ also has planned diverse activities to meet its city’s unique needs. All of them have planned activities to increase the number of jobs in the EZ, improve the EZ’s infrastructure, and provide better support to families. However, the specific activities varied, reflecting decisions made within each EZ. According to HUD, the EZs had obligated over $170 million as of November 1996. However, the definition of obligations differed. For example, one EZ defined obligations as the amount of money that had been awarded under contracts. Another EZ defined obligations as the total value of the projects that had been approved by the city council, only a small part of which had been awarded under contracts. As of September 30, 1997, the six EZs had drawn down about $30 million from the EZ/EC SSBG funds for administrative costs, as well as for specific activities in the EZs. We interviewed participants in the urban EZ program and asked them to identify what had and had not gone well in planning and implementing the program. Our interviews included EZ directors and governance board members, state officials involved in drawing down the EZ/EC SSBG funds, contractors who provided day-to-day assistance to the EZs, and HUD and HHS employees. Subsequently, we surveyed 32 program participants, including those we had already interviewed, and asked them to indicate the extent to which a broad set of factors had helped or hindered the program’s implementation. While the survey respondents’ views cannot be generalized to the entire EZ/EC program, they are useful in understanding how to improve the current EZ program. In the 27 surveys that were returned to us, the following five factors were identified by more than half of the survey respondents as having helped them plan and implement the EZ program: community representation on the EZ governance boards, enhanced communication among stakeholders, assistance from HUD’s contractors (called generalists), support from the city’s mayor, and support from White House and cabinet-level officials. Similarly, the following six factors were frequently identified by survey respondents as having constrained their efforts to plan and implement the EZ program: difficulty in selecting an appropriate governance board structure, the additional layer of bureaucracy created by the state government’s involvement, preexisting relationships among EZ stakeholders, pressure for quick results from the media, the lack of federal funding for initial administrative activities, and pressure for quick results from the public and private sectors. From the beginning, the Congress and HUD have made evaluation plans an integral part of the EZ program. OBRA 1993 required that each EZ applicant identify in its strategic plan the baselines, methods, and benchmarks for measuring the success of its plan and vision. In its application guidelines, HUD amplified the act’s requirements by asking each urban applicant to submit a strategic plan based on four principles: (1) creating economic opportunity for the EZ’s residents, (2) creating sustainable community development, (3) building broad participation among community-based partners, and (4) describing a strategic vision for change in the community. These guidelines also stated that the EZs’ performance would be tracked in order to, among other things, “measure the impact of the EZ/EC program so that we can learn what works.” According to HUD, these four principles serve as the overall goals of the program. Furthermore, HUD’s implementation guidelines required each EZ to measure the results of its plan by defining benchmarks for each activity in the plan. HUD intended to track performance by (1) requiring the EZs to report periodically to HUD on their progress in accomplishing the benchmarks established in their strategic plans and (2) commissioning third-party evaluations of the program. HUD stated that information from the progress reports that the EZs prepare would provide the raw material for annual status reports to HUD and long-term evaluation reports. HUD reviews information on the progress made in each EZ and EC to decide whether to continue each community’s designation as an EZ or an EC. At the time that we issued our December 1996 report, all six of the urban EZs had prepared benchmarks that complied with HUD’s guidelines and described activities that they had planned to implement the program. In most cases, the benchmarks indicated how much work, often referred to as an output, would be accomplished relative to a baseline. For example, a benchmark for one EZ stated that the EZ would assist businesses and entrepreneurs in gaining access to capital resources and technical assistance through the establishment of a single facility called a one-stop capital shop. The associated baseline was that there was currently no one-stop capital shop to promote business activity. The performance measures for this benchmark included the amount of money provided in commercial lending, the number of loans made, the number of consultations provided, and the number of people trained. Also by December 1996, HUD had (1) defined the four key principles, which serve as missions and goals for the EZs; (2) required baselines and performance measures for benchmarks in each EZ to help measure the EZ’s progress in achieving specific benchmarks; and (3) developed procedures for including performance measures in HUD’s decision-making process. However, the measures being used generally described the amount of work that would be produced (outputs) rather than the results that were anticipated (outcomes). For example, for the benchmark cited above, the EZ had not indicated how the outputs (the amount of money provided in commercial lending, the number of loans made, the number of consultations provided, and the number of people trained) would help to achieve the desired outcome (creating economic opportunity, the relevant key principle). To link the outputs to the outcome, the EZ could measure the extent to which accomplishing the benchmark increased the number of businesses located in the zone. Without identifying and measuring desired outcomes, HUD and the EZs may have difficulty determining how much progress the EZs are making toward accomplishing the program’s overall mission. HUD officials agreed that the performance measures used in the EZ program were output-oriented and believed that these were appropriate in the short term. They believed that the desired outcomes of the EZ program are subject to actions that cannot be controlled by the entities involved in managing this program. In addition, the impact of the EZ program on desired outcomes cannot be isolated from the impact of other events. Consequently, HUD believed that defining outcomes for the EZ program was not feasible. Concerns about the feasibility of establishing measurable outcomes for programs are common among agencies facing this difficult task. However, because HUD and the EZs have made steady and commendable progress in establishing an output-oriented process for evaluating performance, they have an opportunity to build on their efforts by incorporating measures that are more outcome-oriented. Specifically, HUD and the EZs could describe measurable outcomes for the program’s key principles and indicate how the outputs anticipated from one or more benchmarks will help achieve those outcomes. Unless they can measure the EZs’ progress in producing desired outcomes, HUD and the EZs may have difficulty identifying activities that should be duplicated at other locations. In addition, HUD and the EZs may not be able to describe the extent to which the program’s activities are helping to accomplish the program’s mission. Madam Chairman, this concludes our prepared remarks. We will be pleased to respond to any questions that you or other Members of the Subcommittee might have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO discussed the Empowerment Zone and Enterprise Community (EZ/EC) program, focusing on: (1) the status of the program's implementation in the six urban empowerment zones, which are located along the east coast and in the mid-west regions of the United States; (2) the factors that program participants believe have either helped or hindered efforts to carry out the program; and (3) the plans for evaluating the program. GAO noted that: (1) all six of the urban EZs had met the criteria defined in the program's authorizing legislation, developed a strategic plan, signed an agreement with the Department of Housing and Urban Development (HUD) and their respective states for implementing the program, signed an agreement with their states for obtaining funds, drafted performance benchmarks, and established a governance structure; (2) however, the EZs differed in their geographic and demographic characteristics, reflecting the selection criteria in the authorizing legislation; (3) many officials involved in implementing the program generally agreed on factors that had either helped or hindered their efforts; (4) for example, factors identified as helping the program's implementation included community representation within the governance structures and enhanced communication among stakeholders; (5) similarly, factors identified as hindering the program's implementation included preexisting relationships among EZ stakeholders and pressure for quick results; (6) from the beginning, the Congress and HUD made evaluation plans an integral part of the EZ program by requiring each community to identify in its strategic plan the baselines, methods, and benchmarks for measuring the success of its plan; and (7) however, the measures being used generally describe the amount of work that will be produced (outputs) rather than the results that are anticipated (outcomes).

In an earlier era, when there was less concern over the costs of health care, the process by which drugs reached patients was relatively simple. The patient went to a doctor, who, if convinced that the malady could be helped with medication, would prescribe a drug that the patient could obtain at the local pharmacy. If the patient’s health insurance had a prescription drug benefit, the patient would be reimbursed for the purchase; if not, the patient would cover the costs out-of-pocket. The decisions regarding which drug would be prescribed were often left to physicians, while those regarding drug cost typically involved manufacturers and retail pharmacies. Further, the health insurer was usually not centrally involved in either decision. Today, the ways in which drugs are prescribed and paid for are considerably more complex. To a great extent, this complexity has been introduced in direct response to concerns with the rapid growth in health care expenditures. Just as with hospital and physician services in an earlier day, insurers have recently begun to take concrete steps to control the costs of pharmacy benefits. Some steps require patients to bear a larger share of the costs of drugs through increased copayments, while others reduce the utilization of drugs and rely more on less-costly types of drugs. The most important steps, however, are directed at minimizing both how much insurers pay manufacturers for drugs and how much they pay pharmacies for their services. Insurers take steps to reduce the acquisition costs of drugs by negotiating for discounts or rebates from drug manufacturers. A powerful tool in these negotiations is the formulary that the insurer or the PBM maintains. A formulary is a list of prescription drugs that are preferred by the insurer or the PBM. Drugs are included on formularies not only for reasons of medical effectiveness but also because of price. Because formularies can affect the utilization rates for drugs, it is in the interest of a drug manufacturer to have its products included. This is especially true when the insurer or PBM is successful in obtaining high rates of physician compliance with the formulary and when the insurer has a large number of enrollees. In these cases, the potential effect that placement on a formulary has on the sales and market share of a drug is so great that insurers can use such placement as a means of securing discounts or rebates from drug manufacturers. Insurers and PBMs also negotiate for discounts directly with pharmacies to try to control how much they reimburse for services. In these negotiations, the position of insurers is strengthened not by formularies but by their ability to influence which pharmacies their enrollees use. As with the negotiations with manufacturers, the position of the insurer or the PBM is related to the number of enrollees represented by the plan. The extent to which negotiated rebates and discounts with drug manufacturers and pharmacies have controlled costs can be substantial. For example, in our most recent examination of these strategies, a large insurer estimated that the combined savings that resulted from manufacturer rebates and pharmacy discounts exceeded $300 million.Many retail pharmacists believe that the means used to achieve these savings have placed them at a comparative disadvantage in the rapidly changing health care environment. The current environment is viewed with anxiety by many retail pharmacists. The success of insurers and other institutional buyers in using their consolidated buying power to reduce the price they pay for drugs has not been shared by retail pharmacists. As a consequence, retail pharmacies are sometimes charged more for similar products than are health insurers such as health maintenance organizations, self insured health plans, and other institutional buyers. The best evidence we were able to obtain that differential pricing existed comes from a recent study of drug pricing in Wisconsin. Table 1 summarizes the results from that study. As can be seen from the table, differences in prices of greater than 10 percent were found for more than one third of all products (27 out of 76 drugs), and in more than one half of those cases (21 percent of all cases), the differences could not be justified by volume of purchase. In placing these findings in a larger perspective, it is important to note that Wisconsin has what is often referred to as a “unitary pricing” law that “requires sellers to offer drugs . . . to every purchaser under the same terms and conditions afforded to the most favored purchaser.” The data from Wisconsin support the conclusion of many that differential pricing exists. The differences in prices may well reflect the relative abilities of insurers and retail pharmacies to influence market share. That is, some purchasers of drugs, primarily those who can influence the specific drugs that are prescribed for large numbers of patients, may pay less for drugs because of that ability. The increasing concern among insurers with controlling costs and the consequent reliance on their consolidated purchasing power also have affected how much pharmacies are reimbursed for the drugs they sell to customers. As health insurers and the PBMs that represent them cover more people, they use the size of their member populations as leverage to help reduce the amounts that they reimburse pharmacies for prescriptions dispensed to those populations. Although a pharmacy can refuse to participate in an insurer’s network of pharmacies willing to provide prescription discounts, it is difficult for the pharmacy to face the possibility of losing the business. For example, each of the two largest PBMs represents more than 40 million people nationwide. As we were told by one independent retail pharmacist, “either I agreed to the new reimbursement schedule, or I lose 40 percent of my patients.” In addition to the pressures of how much retail pharmacists pay for drugs and how much they can charge for their services, they have been facing pressure from new sources of competition. The expansion of supermarkets into the pharmaceutical area has been under way for some time, but the more immediate threat to the viability of retail pharmacies may be posed by the reliance of insurers on mail order pharmacies. Mail order firms have made significant inroads into the market in recent years, especially in providing drugs for the chronically ill. In an effort to promote the use of mail order pharmacies, some insurers provide enrollees with considerable financial incentives. For example, the largest plan under the federal employee health benefits program provides enrollees drugs free of charge if they obtain them through the mail order program yet requires a 20-percent copayment from most enrollees for drugs purchased at retail pharmacies. All these pressures on retail pharmacies have had a considerable effect. For example, in the case described above, a change in pharmacy benefits that affected many of the plan’s enrollees reduced payments to retail pharmacies. During the first 5 months of 1996, the total amount that retail pharmacies were paid for the prescriptions they dispensed to enrollees affected by the benefit change decreased by about 36 percent, or about $95 million, from the amount paid during the same period in 1995. Retail pharmacists have resorted to three different types of action in response to the changes in pharmaceutical pricing: litigation, adoption of competitive strategies, and calls for legislation. A large lawsuit regarding drug pricing was recently settled, at least in part. The suit was a class action by tens of thousands of independent and chain pharmacies against virtually all the leading manufacturers and wholesalers of brand-name prescription drugs. The pharmacies argued that the manufacturers and wholesalers, by granting discounts to managed care organizations that were not available to the pharmacies, were engaged in a price-fixing conspiracy in violation of federal antitrust law. The court rejected an initial settlement but approved a modified settlement with most of the manufacturer-defendants on June 21, 1996.(The wholesalers are not parties to this settlement because the court earlier granted summary judgment in their favor.) The litigation is not entirely over because not all parties have agreed to the settlement, and a number of issues remain on appeal in the Court of Appeals for the 7th Circuit. The modified settlement satisfied the concerns about future pricing conduct that led the court to reject the initial proposal. Specifically, the current settlement provides that (1) the manufacturers will not refuse discounts solely on the basis that the buyer is a retailer and (2) retail pharmacies and buying groups that are able to demonstrate an ability to affect market share will be entitled to discounts based on that ability, to the same extent that managed care organizations would get such discounts. In addition to pursuing legal remedies, retail pharmacies are beginning to adopt some strategies designed specifically to become more competitive in the new environment. Some pharmacies are offering services not traditionally found in them (such as food products and optical care), while some are trying to follow the lead of institutional drug purchasers. For example, some retailers are creating buying groups, and others are considering ways to influence the choice of drugs by contacting patients directly and informing them of the relative merits of the different drugs that might be available. If contacting patients directly is successful, it will provide retail pharmacies with the commodity that makes institutional buyers so powerful—namely, the ability to influence market share. Although we cannot predict how successful any of these strategies will be, the large chain pharmacies are more likely to succeed as they try to compete with managed care organizations and mail order pharmacies than are the smaller, independent retail pharmacies. Finally, retail pharmacists and their representatives have been strong proponents for legislative solutions. Depending on ideological affiliation, these are alternatively referred to as “unitary pricing” or “equal access to discount” laws, and they have been considered in one form or another by the majority of state legislatures. Although it is difficult to predict all the consequences of legislation in such a complex area as drug pricing, we can look to the last instance in which the federal government attempted a legislative solution to a problem involving drug costs: the Medicaid rebate on prescription drugs. In OBRA 1990, the Congress tried to reduce Medicaid’s prescription drug costs by requiring that drug manufacturers give state Medicaid programs rebates for outpatient drugs. The rebates were based on the lowest of “best” prices that drug manufacturers charged other purchasers, such as health maintenance organizations and hospitals. In our study of this legislation, we found that the average best price for outpatient drugs paid by large purchasers increased. In its evaluation, the Congressional Budget Office concluded that the program had reduced Medicaid spending on prescription drug benefits by almost $2 billion. However, at the same time, the budget office study’s conclusion was consistent with ours in that “spending on prescription drugs by non-Medicaid patients may have increased as a result of the Medicaid rebate program.” Although the issues involved with the differential pricing between institutional and retail pharmacies are likely to be distinct from those the Congress confronted in the Medicaid prescription drug benefit, the lessons of OBRA 1990 cannot be ignored at a time when controlling health care costs is of such critical importance. Mr. Chairman, this concludes my statement. I would be happy to answer any questions that the Subcommittee might have. For more information about this testimony, please call George Silberman, Assistant Director, at 202-512-5885. Other major contributors include David G. Bernet, Joel A. Hamilton, and John C. Hansen. Blue Cross FEHB Pharmacy Benefits (GAO/HEHS-96-182R, July 19, 1996). Pharmacy Benefit Managers: Early Results on Ventures with Drug Manufacturers (GAO/HEHS-96-45, Nov. 9, 1995). Medicaid: Changes in Best Price for Outpatient Drugs Purchased by HMOs and Hospitals (GAO/HEHS-94-194FS, Aug. 5, 1994). Prescription Drugs and the Elderly: Many Still Receive Potentially Harmful Drugs Despite Recent Improvements (GAO/HEHS-95-152, July 24, 1995). Prescription Drug Prices: Official Index Overstates Producer Price Inflation (GAO/HEHS-95-90, Apr. 28, 1995). Prescription Drugs: Spending Controls in Four European Countries (GAO/HEHS-94-30, May 17, 1994). Prescription Drugs: Companies Typically Charge More in the United States Than in the United Kingdom (GAO/HEHS-94-29, Jan. 12, 1994). Medicaid: Outpatient Drug Costs and Reimbursements for Selected Pharmacies in Illinois and Maryland (GAO/HRD-93-55FS, Mar. 18, 1993). Prescription Drug Prices: Analysis of Canada’s Patented Medicine Prices Review Board (GAO/HRD-93-51, Feb. 17, 1993). Medicaid: Changes in Drug Prices Paid by HMOs and Hospitals Since Enactment of Rebate Provisions (GAO/HRD-93-43, Jan. 15, 1993). Prescription Drugs: Companies Typically Charge More in the United States Than in Canada (GAO/HRD-92-110, Sept. 30, 1992). Prescription Drugs: Changes in Prices for Selected Drugs (GAO/HRD-92-128, Aug. 24, 1992). Medicaid: Changes in Drug Prices Paid by VA and DOD Since Enactment of Rebate Provisions (GAO/HRD-91-139, Sept. 18, 1991). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

GAO discussed the implications of prescription drug pricing for retail pharmacies, focusing on the: (1) changes in the process of getting prescription drugs from manufacturers to patients; and (2) consequences for and response of retail pharmacies to these changes. GAO noted that: (1) health insurers have used their consolidated buying power to obtain drug discounts not available to retail pharmacies; (2) health insurers and pharmacy benefit managers (PBM) use the size of their member populations as leverage to help reduce the amounts that they reimburse pharmacies for prescriptions dispensed to those populations; (3) retail pharmacies have been facing increased competition from mail order pharmacies; and (4) retail pharmacies have responded to the changes in pharmaceutical pricing by waging lawsuits against leading drug manufacturers and wholesalers, developing more competitive strategies for gaining business, and campaigning for legislative action.

Under DERP, DOD is required to conduct environmental restoration activities at sites located on former and active defense properties that were contaminated while under its jurisdiction. Program goals include the identification, investigation, research and development, and cleanup of contamination from hazardous substances, pollutants, and contaminants; the correction of other environmental damage (such as detection and disposal of unexploded ordnance) that creates an imminent and substantial endangerment to public health or welfare or the environment; and the demolition and removal of unsafe buildings and structures. Types of environmental contaminants found at military installations include solvents and corrosives; fuels; paint strippers and thinners; metals, such as lead, cadmium, and chromium; and unique military substances, such as nerve agents and unexploded ordnance. DOD has undergone five BRAC rounds, with the most recent occurring in 2005. Under the first four rounds, in 1988, 1991, 1993, and 1995, DOD closed 97 major bases, had 55 major base realignments, and addressed hundreds of minor closures and realignments. DOD reported that the first four BRAC rounds reduced the size of its domestic infrastructure by about 20 percent and generated about $6.6 billion in net annual recurring savings beginning in fiscal year 2001. As a result of the 2005 BRAC decisions, DOD was slated to close an additional 25 major bases, complete 32 major realignments, and complete 755 minor base closures and realignments. When the BRAC decisions were made final in November 2005, the BRAC Commission had projected that the implementation of these decisions would generate over $4 billion in annual recurring net savings beginning in 2011. In accordance with BRAC statutory authority, DOD must complete closure and realignment actions by September 15, 2011—6 years following the date the President transmitted his report on the BRAC recommendations to Congress. Environmental cleanup and property transfer actions associated with BRAC sites can exceed the 6-year time limit, having no deadline for completion. As we have reported in the past, addressing the cleanup of contaminated properties has been a key factor related to delays in transferring unneeded BRAC property to other parties for reuse. DOD officials have told us that they expect environmental cleanup to be less of an impediment for the 2005 BRAC sites since the department now has a more mature cleanup program in place to address environmental contamination on its bases. In assessing potential contamination and determining the degree of cleanup required (on both active and closed bases), DOD must comply with cleanup standards and processes under all applicable environmental laws, regulations, and executive orders. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) authorizes the President to conduct or cause to be conducted cleanup actions at sites where there is a release or threatened release of hazardous substances, pollutants or contaminants which may present a threat to public health and the environment. The Superfund Amendments and Reauthorization Act of 1986 (SARA) amending CERCLA clarified that federal agencies with such sites shall be subject to and comply with CERCLA in the same manner as a private party, and DOD was subsequently delegated response authority for its properties. To respond to potentially contaminated sites on both active and closed bases, DOD generally uses the CERCLA process, which includes the following phases and activities, among others: preliminary assessment, site investigation, remedial investigation and feasibility study, remedial design and remedial action, and long-term monitoring. SARA also required the Secretary of Defense to carry out the Defense Environmental Restoration Program (DERP). Following SARA’s enactment, DOD established DERP, which consists of two key subprograms focused on environmental contamination: (1) the Installation Restoration Program (IRP), which addresses the cleanup of hazardous substances where they were released into the environment prior to October 17, 1986; and (2) the Military Munitions Response Program (MMRP), which addresses the cleanup of munitions, including unexploded ordnance and the contaminants and metals related to munitions, where they were released into the environment prior to September 30, 2002. While DOD is authorized to conduct cleanups of hazardous substances released after 1986 and munitions released after 2002, these activities are not eligible for DERP funds but are instead considered “compliance” cleanups and are typically funded by base operations and maintenance accounts. Once a property is identified for transfer by a BRAC round, DOD’s cleanups are funded by the applicable BRAC account. While SARA had originally required the government to warrant that all necessary cleanup actions had been taken before transferring property to nonfederal ownership, the act was amended in 1996 to allow expedited transfers of contaminated property. Now such property, under some circumstances, can be transferred to nonfederal users before all remedial action has been taken. However, certain conditions must exist before DOD can exercise this early transfer authority; for example, the property must be suitable for the intended reuse and the governor of the state must concur with the transfer. Finally, DOD remains responsible for completing all necessary response action, after which it must warrant that such work has been completed. DOD uses the same method to propose funding for cleanup at active and BRAC sites and FUDS; and cleanup funding is based on DERP goals and is generally proportional to the number of sites in each of these categories. Specifically, officials in the Military Departments, Defense Agencies, and FUDS program who are responsible for environmental restoration at the sites under their jurisdiction formulate cleanup budget proposals based on instructions in DOD’s financial management regulation and DERP environmental restoration performance goals. DOD’s DERP goals include reducing risk to human health and the environment, preparing BRAC properties to be environmentally suitable for transfer, having final remedies in place and completing response actions, and fulfilling other established milestones to demonstrate progress toward meeting program performance goals. DERP goals included target dates representing when the current inventory of active and BRAC sites and FUDS are expected to complete the preliminary assessment and site inspection phases, or achieve the remedy in place or response complete (RIP/RC) milestone. In addition, Congress has required the Secretary of Defense to establish specific performance goals for MMRP sites. Table 1 provides a summary of these goals for the IRP and MMRP. As the table indicates, BRAC sites have no established goals for preliminary assessments or site inspections. For sites included under the first four BRAC rounds, the goal is to reach the RIP/RC milestone at IRP sites by 2015 and at MMRP sites by 2009. For sites included under the 2005 BRAC round, the goal is to reach the RIP/RC milestone at IRP sites by 2014 and at MMRP sites by 2017. DOD’s military components plan cleanup actions that are required to meet these goals at the installation or site level. DOD requires the components to assess their inventory of BRAC and other sites by relative risk to help make informed decisions about which sites to clean up first. Using these relative risk categories, as well as other factors such as stakeholder interest and mission needs, the components set more specific cleanup targets each fiscal year to demonstrate progress and prepare a budget to achieve those goals and targets. The proposed budgets and obligations among site categories are also influenced by the need to fund long-term management activities. While DOD uses the number of sites achieving RIP/RC status as a primary performance metric, sites that have reached this goal may still require long-term management and, therefore, additional funding for a number of years. Table 2 shows the completion status for active and BRAC sites and FUDS, as of the end of fiscal year 2008. Table 3 shows the completion status of BRAC sites and those that require long term management under the IRP, MMRP, and the Building Demolition/Debris Removal Program by military component, for fiscal years 2004 through 2008. DOD data show that, in applying the broad restoration goals, performance goals, and targets, cleanup funding is generally proportional to the number of sites in the active, BRAC, and FUDS site categories. Table 4 shows the total DERP inventory of sites, obligations, and proportions at the end of fiscal year 2008. As the table indicates, the total number of BRAC sites requiring cleanup is about 17 percent of the total number of defense sites, while the $440.2 million obligated to address BRAC sites in fiscal year 2008 is equivalent to about 25 percent of the total funds obligated for cleaning up all defense waste sites. Since DERP was established, approximately $18.4 billion has been obligated for environmental cleanup at individual sites on active military bases, $7.7 billion for cleanup at sites located on installations designated for closure under BRAC, and about $3.7 billion to clean up FUDS sites. During fiscal years 2004 through 2008, about $4.8 billion was spent on cleaning up sites on active bases, $1.8 billion for BRAC sites, and $1.1 billion for FUDS sites. Table 5 provides DOD’s funding obligations for cleanup at BRAC sites by military component and program category for fiscal years 2004 through 2008. Table 6 shows DOD’s estimated cost to complete environmental cleanup for sites located at active installations, BRAC installations, and FUDS under the IRP, MMRP, and the Building Demolition and Debris Removal Program for fiscal years 2004 through 2008. Finally, table 7 shows the total inventory of BRAC sites and the number ranked as high risk in the IRP and MMRP, by military component, for fiscal years 2004 through 2008. Our past work has also identified a number of challenges to DOD’s efforts in undertaking environmental cleanup activities at defense sites, including BRAC sites. For example, we have reported the following: DOD’s preliminary cost estimates for environmental cleanup at specific sites may not reflect the full cost of cleanup. That is, costs are generally expected to increase as more information becomes known about the extent of the cleanup needed at a site to make it safe enough to be reused by others. We reported in 2007 that our experience with prior BRAC rounds had shown that cost estimates tend to increase significantly once more detailed studies and investigations are completed. Environmental cleanup issues are unique to each site. However, we have reported that three key factors can lead to delays in the cleanup and transfer of sites. These factors are (1) technological constraints that limit DOD’s ability to accurately identify, detect, and clean up unexploded ordnance from a particular site, (2) prolonged negotiations between environmental regulators and DOD about the extent to which DOD’s actions are in compliance with environmental regulations and laws, and (3) the discovery of previously undetected environmental contamination that can result in the need for further cleanup, cost increases, and delays in property transfer. In conclusion, Mr. Chairman, while the data indicate that DOD has made progress in cleaning up its contaminated sites, they also show that a significant amount of work remains to be done. Given the large number of sites that DOD must clean up, we recognize that it faces a significant challenge. Addressing this challenge, however, is critical because environmental cleanup has historically been a key impediment to the expeditious transfer of unneeded property to other federal and nonfederal parties who can put the property to new uses. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or Members of the Subcommittee may have. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. For further information about this testimony, please contact Anu Mittal at (202) 512- 3841 or mittala@gao.gov or John B. Stephenson at (202) 512-3841 or stephensonj@gao.gov. Contributors to this testimony include Elizabeth Beardsley, Antoinette Capaccio, Vincent Price, and John Smith. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Under the Defense Environmental Restoration Program (DERP), the Department of Defense (DOD) is responsible for cleaning up about 5,400 sites on military bases that have been closed under the Base Realignment and Closure (BRAC) process, as well as 21,500 sites on active bases and over 4,700 formerly used defense sites (FUDS), properties that DOD owned or controlled and transferred to other parties prior to October 1986. The cleanup of contaminants, such as hazardous chemicals or unexploded ordnance, at BRAC bases has been an impediment to the timely transfer of these properties to parties who can put them to new uses. The goals of DERP include (1) reducing risk to human health and the environment (2) preparing BRAC properties to be environmentally suitable for transfer (3) having final remedies in place and completing response actions and (4) fulfilling other established milestones to demonstrate progress toward meeting program performance goals. This testimony is based on prior work and discusses information on (1) how DOD allocates cleanup funding at all sites with defense waste and (2) BRAC cleanup status. It also summarizes other key issues that GAO has identified in the past that can impact DOD's environmental cleanup efforts. DOD uses the same method to propose funding for cleanup at FUDS, active sites, and BRAC sites; cleanup funding is based on DERP goals and is generally proportional to the number of sites in each of these categories. Officials in the Military Departments, Defense Agencies, and FUDS program, who are responsible for executing the environmental restoration activities at their respective sites, formulate cleanup budget proposals using the instructions in DOD's financial management regulation and DERP environmental restoration performance goals. DERP's goals include target dates for reaching the remedy-in-place or response complete (RIP/RC) milestone. For example, for sites included under the first four BRAC rounds, the goal is to reach the RIP/RC milestone at sites with hazardous substances released before October 1986 by 2015 and for sites in the 2005 BRAC round by 2014. DOD's military components plan cleanup actions that are required to meet DERP goals at the installation or site level. DOD requires the components to assess their inventory of BRAC and other sites by relative risk to help make informed decisions about which sites to clean up first. Using these relative risk categories, as well as other factors, the components set more specific restoration targets each fiscal year to demonstrate progress and prepare a budget to achieve those goals and targets. DOD data show that, in applying the goals, and targets, cleanup funding has generally been proportional to the number of sites in the FUDS, active, and BRAC site categories. For example, the total number of BRAC sites requiring cleanup is about 17 percent of the total number of defense sites requiring cleanup, while the $440.2 million obligated to address BRAC sites in fiscal year 2008 is equivalent to about 25 percent of the total funds obligated for this purpose for all defense waste sites. GAO's past work has also shown that DOD's preliminary cost estimates for cleanup generally tend to rise significantly as more information becomes known about the level of contamination at a specific site. In addition, three factors can lead to delays in cleanup. They are (1) technological constraints that limit DOD's ability to detect and cleanup certain kinds of hazards, (2) prolonged negotiations with environmental regulators on the extent to which DOD's actions are in compliance with regulations and laws, and (3) the discovery of previously unknown hazards that can require additional cleanup, increase costs, and delay transfer of the property.

Federal contracting began declining in the late 1980s as the Cold War drew to a close and defense spending decreased. This decline in federal contracting continued for most of the 1990s, reaching a low of about $187 billion in fiscal year 1999. Spending subsequently increased to about $204 billion in fiscal year 2000. As figure 1 shows, between fiscal year 1990 and fiscal year 2000, purchases of supplies and equipment fell by about $25 billion, while purchases of services increased by $17 billion, or about 24 percent. Consequently, purchases for services now account for about 43 percent of federal contracting expenses—the largest single spending category. The growth in services has largely been driven by the government's increased purchases of two types of services: information technology services, which increased from $3.7 billion in fiscal year 1990 to about $13.4 billion in fiscal year 2000; and professional, administrative, and management support services, which rose from $12.3 billion in fiscal year 1990 to $21.1 billion in fiscal year 2000. The increase in the use of service contracts coincided with a 21-percent decrease in the federal workforce, which fell from about 2.25 million employees as of September 1990 to 1.78 million employees as of September 2000. As federal spending and employment patterns were changing, changes were also occurring in the way that federal agencies buy services. Specifically, there has been a trend toward agencies purchasing professional services using contracts awarded and managed by other agencies. For example, in 1996, the General Services Administration (GSA) began offering information technology services under its Federal Supply Schedule program, and it now offers services ranging from professional engineering to laboratory testing and analysis to temporary clerical and professional support services. The use of the schedule program to acquire services has increased significantly over the past several years. Other governmentwide contracts have also come into use in recent years. The Federal Acquisition Streamlining Act of 1994 authorized federal agencies to enter into multiple award, task- and delivery-order contracts for goods and services. These contracts provide agencies with a great deal of flexibility in buying goods or services while minimizing the burden on government contracting personnel to negotiate and administer contracts. The Clinger-Cohen Act of 1996 authorized the use of multiagency contracts and what have become known as governmentwide agency contracts to facilitate purchases of information technology-related products and services such as network maintenance and technical support, systems engineering, and integration services. While we have seen the environment change considerably, what we have not seen is a significant improvement in federal agencies' management of service contracts. Put simply, the poor management of service contracts undermines the government's ability to obtain good value for the money spent. This contributed to our decision to designate contract management a high-risk area for the Departments of Defense and Energy, the two largest purchasers within the federal government. Improving contract management is also among the management challenges faced by other agencies. Compounding these problems are the agencies' past inattention to strategic human capital management. As you may know, in January 2001, we designated strategic human capital management a governmentwide high-risk area. Our work, as well as work by other oversight agencies, continues to identify examples of long-standing problems in service contracting, including poor planning, inadequately defined requirements, insufficient price evaluation, and lax oversight of contractor performance. For example, We found that the Department of Defense's (DOD) broadly defined work descriptions for information technology services orders placed against several governmentwide contracts prevented establishing firm prices for the work. Work descriptions defined services broadly because the orders covered several years of effort, and officials were uncertain what support they would need in future years. The 22 orders we reviewed—with a total value of $553 million—typically provided for reimbursing the contractors' costs, leaving the government bearing most of the risk of cost growth. Further, although competition helps agencies ensure they obtain the best value under contracts, a majority of these orders were awarded without competing proposals having been received. The DOD Inspector General found problems with each of the more than 100 contract actions—with a total value of $6.7 billion—for professional, administrative, and management support services it reviewed. For example, contracting officials typically did not use experience from prior acquisitions of the same services to help define requirements more clearly. In one case, officials continued to award cost reimbursement contracts— and accepted the risk of cost overruns—despite 39 years of experience purchasing the same services from the same contractor. Further, officials typically did not prepare well-supported independent cost estimates to help them assess whether the costs contractors proposed were reasonable. Finally, the Inspector General found that oversight of contractor performance was inadequate in a majority of cases, and in some cases DOD officials could not show that they had actually reviewed the contractors' work. We found that DOD personnel sought competing quotes from multiple contractors on only a handful of orders for information technology services placed against GSA's federal supply schedule contracts. On 17 orders—valued at $60.5 million—contracting officers generally compared the labor rates offered by their preferred contractor with labor rates of various other contractors' supply schedule contracts instead of seeking competing quotes. This limited analysis did not provide a meaningful basis for assessing whether a contractor would provide high-quality, cost- effective services because it did not evaluate the proposed number of labor hours and mix of labor skill categories. Therefore, contracting officers' ability to ensure that DOD got the best services at the best prices was significantly undermined. The Inspector General at the Department of Transportation found that on an $875-million contract for technical support services, the Federal Aviation Administration did not develop reliable cost estimates or use these estimates to assess whether costs the contractor proposed were reasonable. Further, the agency generally did not gather data to evaluate the quality of contractor performance nor ensure that contractor personnel had the education and experience required for the jobs they were being paid to perform. The Inspector General at the Department of Energy reported on a $218-million contract for security services at its Oak Ridge operations.This contract was intended to consolidate security services under a single contractor and to reduce costs by reducing staffing and eliminating duplicative management structures. Oak Ridge officials, however, did not define what security-related work the new contractor would perform and did not analyze staffing levels or propose cost reduction measures to promote efficient contractor performance. Consequently, the number of security personnel actually increased from 640 prior to the consolidation to 744 afterwards, while Oak Ridge incurred an estimated $7.5 million in avoidable costs instead of achieving an anticipated $5 million in savings. While these examples highlight the need for federal agencies to improve their management of service contracts, their capacity to do so is at risk because of past inattention to strategic human capital management. We are concerned that federal agencies' human capital problems are eroding the ability of many agencies—and threaten the ability of others—to perform their missions economically, efficiently, and effectively. For example, we found that the initial rounds of downsizing were set in motion without considering the longer term effects on agencies' performance capacity. Additionally, a number of individual agencies drastically reduced or froze their hiring efforts for extended periods. Consequently, following a decade of downsizing and curtailed investments in human capital, federal agencies currently face skills, knowledge, and experience imbalances that, without corrective action, could worsen given the number of current federal civilian workers that are eligible to retire through 2005. I would like to use DOD's experience to illustrate this problem. As we recently testified, DOD's approach to civilian workforce reduction was not oriented toward shaping the makeup of the force. Rather, DOD relied primarily on voluntary turnover and retirements, freezes on hiring authority, and its authority to offer early retirements and "buy-outs" to achieve reductions. As a result, DOD's current workforce is not balanced and therefore risks the orderly transfer of institutional knowledge. According to DOD's Acquisition 2005 Task Force, 11 consecutive years of downsizing produced serious imbalances in the skills and experience of the highly talented and specialized civilian acquisition workforce, putting DOD on the verge of a retirement-driven talent drain. DOD's leadership had anticipated that using streamlined acquisition procedures would improve the efficiency of contracting operations and help offset the effects of workforce downsizing. However, the DOD Inspector General reported that the efficiency gains from using streamlined procedures had not kept pace with acquisition workforce reductions. The Inspector General reported that while the workforce had been reduced by half, DOD's contracting workload had increased by about 12 percent and that senior personnel at 14 acquisition organizations believed that workforce reductions led to problems such as less contractor oversight. While I have discussed DOD's problems at length, we believe our concerns are equally valid regarding the broader civilian agency contracting community. For example, our analysis of personnel data maintained by the Office of Personnel Management (OPM) shows that while DOD downsized its workforce to a greater extent than the civilian agencies during the 1990s, both DOD and the civilian agencies will have about 27 percent of their current contracting officers eligible to retire through the end of fiscal year 2005. Consequently, without appropriate workforce planning, federal agencies could lose a significant portion of their contracting knowledge base. Congress and the administration are taking steps to address some of these contract management and human capital challenges, in particular by emphasizing the increased use of performance-based service contracts and by stressing the importance of integrating strategic human capital management into agency planning. Performance-based contracts describe desired outcomes rather than direct work processes. According to the Office of Federal Procurement Policy, the use of performance-based contracts should result in lower prices and improved performance, among other benefits. To encourage their use, in April 2000, the Procurement Executives Council—a senior level coordinating body comprised of officials from more than 20 federal departments and agencies—established a goal that 50 percent of service contracts will be performance-based by fiscal year 2005. The goal of increasing the use of performance-based contracts was reaffirmed in a March 9, 2001, memorandum issued by the Office of Management and Budget (OMB). Further, as required by last year's defense authorization act, the Federal Acquisition Regulation was revised on May 2, 2001, to establish a preference for using performance-based contracting when acquiring services. While we support the use of performance-based approaches, it should be recognized that performance-based contracting is not a new concept. The Office of Federal Procurement Policy issued a policy letter in April 1991 that directed using performance-based contracting to the maximum extent practicable. However, this approach was not widely adopted by federal agencies, and the Procurement Executives Council's interim goal of having 10 percent of service contracts awarded in fiscal year 2001 be performance-based is indicative of the current level of performance-based contracting in the government. Consequently, the extent to which agencies provide the necessary training, guidance, and tools to their workforce, and establish metrics to monitor the results of the contracts awarded using performance-based approaches, will affect whether this effort achieves its intended results. With regard to human capital management, it is clear that both OPM and OMB have substantial roles to play. OPM has begun stressing to agencies the importance of integrating strategic human capital management into agency planning and has focused more attention on developing tools to help agencies. For example, it has developed a workforce planning model and has launched a website to facilitate information sharing about workforce planning issues. OMB has played a more limited role; however, OMB's role in setting governmentwide management priorities and defining resource allocations will be critical to inducing agencies to integrate strategic human capital into their core business processes. Toward that end, OMB's current guidance to agencies on preparing their strategic and annual performance plans states that the plans should set goals in such areas as recruitment, retention, and training, among others. Earlier this month, OMB instructed agencies to submit a workforce analysis to it by June 29, 2001. The analysis is to include summary information on the demographics of the agencies' permanent, seasonal, and temporary workforce; projected attrition and retirements; an evaluation of workforce skills; expected changes in the agency's work; recruitment, training, and retention strategies being implemented; and barriers to maintaining a high- quality and diverse workforce. The information developed may prove useful in identifying human capital areas needing greater attention. Over the past decade, federal spending patterns changed, the federal workforce declined, and new contracting vehicles and techniques were introduced. Consequently, the current environment in which the government acquires services is significantly different than the one it operated under in 1990. However, the government's long-standing difficulties with managing service contracts have not changed, and it is clear that agencies are not doing all they can to ensure that they are acquiring services that meet their needs in a cost-effective manner. The increasing significance of contracting for services has prompted—and rightfully so—a renewed emphasis by Congress and the executive agencies to resolve long-standing problems with service contracts. To do so, the government must face the twin challenges of improving its acquisition of services while simultaneously addressing human capital issues. One cannot be done without the other. Expanding the use of performance-based contracting approaches and emphasizing strategic human capital planning are welcomed and positive steps, but sustained leadership and commitment will be required to ensure that these efforts mitigate the risks the government currently faces when contracting for services. Mr. Chairman, this concludes my prepared statement. I will be happy to respond to any questions you or other Members of the Subcommittee may have. For further information, please contact David E. Cooper at (202) 512-4841. Individuals making key contributions to this testimony included Don Bumgardner, Ralph Dawn, Tim DiNapoli, Julia Kennon, Gordon Lusby, Monty Peters, Ron Schwenn, and John Van Schaik.

Federal agencies spend billions of tax dollars each year to buy services--from clerical support to information technology assistance to the management of national laboratories. The federal government spent more than $87 billion in services--a 24 percent increase in real terms from fiscal year 1990. Some service procurements are not being done efficiently, putting taxpayer dollars at risk. In particular, agencies are not clearly defining their requirements, fully considering alternative solutions, performing vigorous price analyses, and adequately overseeing contractor performance. This testimony (1) describes service contracting trends and the changing acquisition environment, (2) discusses the challenges confronting the government in acquiring services, and (3) highlights some efforts underway to address these challenges. GAO found that purchases of services now account for about 43 percent of federal contracting expenses--the largest single spending category. The growth of services has been driven largely by the government's increased purchases of information technology services and professional, administrative, and management support services. Poor contract management has undermined the government's ability to obtain good value for the money and continues to be a major problem for the two biggest service purchasers-the Departments of Defense and Energy. Performance-based service contracts and the integration of strategic human capital management into agency planning are two ways to address some of the contract management and human capital challenges.

Our assessment identified differences in both Hepatitis C activities that were included in VA’s original fiscal year 2000 budget: screening and antiviral drug therapy. VA budgeted $195 million for these activities, but only spent $50 million, a $145 million difference. However, VA’s briefing paper shows only a $95 million difference because VA’s reported expenditures include $50 million for activities not specifically budgeted, such as treatment of conditions related to Hepatitis C. (See table 1.) We believe that management decisions could have contributed to lower than expected screening and treatment expenditures, in addition to the factors VA cited. VA expended $14 million for Hepatitis C screening—one-third less than the amount budgeted for fiscal year 2000. VA’s budget assumed that almost 985,000 veterans would be screened for Hepatitis C exposure at an average cost of $21 per veteran. However, VHA estimates that only 478,000 veterans were screened at a cost of $30 per veteran—a shortfall of over 50 percent. VA’s briefing paper reported that two factors caused this workload difference. First, VA points out that the budget estimate may have been unrealistically high because it was based on “untested assumptions” concerning the number of veterans who use the VA health care system who would need to be screened for Hepatitis C. Second, VA noted that the number screened may be underreported due to inadequate data systems. While VA’s reasons are valid, management decisions also could have contributed to the lower than expected number of veterans who were screened, causing the screening workload assumption to appear unrealistically high. For example, VHA decided to include Hepatitis C funds as part of its general medical care resource distribution process, without clearly communicating how much was available for screening and treatment of the Hepatitis C virus. As a result, network and medical facility staff we interviewed were generally unaware that they had received $21 million in funding that VA had requested for increased Hepatitis C screening. Network budget officers, medical center managers, and clinical staff told us that they thought VHA did not receive additional funding to support increased Hepatitis C activities. Those who thought funds were available were unsure of the amount. Such perceived funding inadequacies appear to have caused some local managers to adopt a cautious approach regarding who to screen and when. At the sites we visited, we noted that while some facility directors instructed providers to screen all users, others limited screening to selected clinics or left it to individual providers to decide who should be screened. Our review of medical records at these sites confirmed that some facilities had limited screening to certain clinics and that some providers had screened few veterans for Hepatitis C. In addition, such situations may have occurred because headquarters managers failed to establish performance targets for networks, which could be used to monitor Hepatitis C screening and treatment workloads. Although VHA promised in its fiscal year 2001 budget request to establish such performance targets, none have yet been adopted. VA’s briefing paper states that meaningful and measurable indicators will be identified and incorporated into performance goals for its 2003 budget request. Also, VHA’s efforts to evaluate or track performance were further hampered by a lack of basic data on the numbers of veterans screened. Notably, after VHA introduced a system to track screening at medical facilities late in fiscal year 2000, the reported number of veterans screened increased dramatically at many facilities we visited. Providers told us the tracking system was a powerful incentive to increase the number of veterans screened. For antiviral treatment, VA spent $36 million—one-fifth of the amount budgeted for fiscal year 2000. VA’s budget assumed that nearly 17,000 veterans would be treated and that 70 percent would complete a 12-month antiviral drug therapy regimen. VA reported, however, that 4,455 veterans received antiviral drug therapy and that most dropped out of treatment before 6 months. VA’s briefing paper characterized its budget estimate as being unrealistically high. VA explained that fewer patients received antiviral therapy because of the high number of patients who reject or defer therapy, or who do not qualify as candidates under treatment guidelines. In addition, treatment expenditures were lower because larger than expected numbers of patients were unable to tolerate the frequent side effects of antiviral drugs, such as anemia, respiratory symptoms, or depression and, therefore, ended treatment prematurely. VA’s reasons seem valid. However, implementation problems relating to VHA’s decision to distribute Hepatitis C funding through its general allocation system without alerting networks to the portion budgeted for Hepatitis C activities could also be a major contributing factor. As previously discussed, staff at local facilities we visited perceived that little or no funds had been appropriated to implement VA’s Hepatitis C initiative. Providers at some of these facilities told us that this perceived funding shortage was a factor that ultimately could explain the unexpectedly low number of veterans treated. Because of the slowly evolving nature of liver disease caused by the Hepatitis C virus, treatment can frequently be postponed, however, without adversely affecting a patient’s health or recovery prospects. VHA’s budget officials told us that when the budget plan for fiscal year 2000 was originally prepared and submitted to the Congress, Hepatitis C funds were expected to be used solely for screening veterans and providing antiviral therapy. Subsequently, VHA decided to report expenditures for treatment of conditions related to the Hepatitis C virus. Of VA’s reported expenditures, $50 million was used for those purposes. Our assessment of VHA’s records indicates that most of this $50 million in expenditures involved inpatient care and pharmaceuticals. (See table 2.) To gain an understanding of these activities, we reviewed medical records at one medical center in consultation with that facility’s Director of Hepatology. This review indicated that inpatient expenditures frequently involved treatment of secondary problems relating to advanced Hepatitis C—including fluid retention in the abdomen, internal bleeding, neurological impairment, and liver cancer. Treatments varied from stabilizing patients’ conditions to liver transplants. Our review of medical records indicates that outpatient expenditures frequently involved treatment of conditions that could preclude the use of antiviral drug therapy. For example, because excessive alcohol consumption reduces the effectiveness of antiviral therapy, VHA may provide alcohol use counseling and treatment in order to provide veterans with the best opportunity to benefit from antiviral treatment. Veterans who are intravenous drug users also need counseling and drug treatment before starting antiviral therapy. VA’s briefing paper reported that expenditures for such related medical conditions were probably undercounted for many veterans. To be counted, VHA requires providers to include a Hepatitis C code in its computerized records system when veterans receive inpatient or outpatient services for liver-related conditions, such as cancer; such coding signifies that Hepatitis C was a co-morbid condition. Officials at one network we visited were aggressively trying to improve coding accuracy. Their efforts suggest that more than half of their Hepatitis C-infected veterans received treatments for Hepatitis C-related conditions that were not coded as such. This problem persists systemwide, despite VHA’s efforts over the past 2 years to encourage—through training and other educational aids— accurate coding by providers. VA officials told us that the fiscal year 2002 budget estimate for Hepatitis C of $171 million includes funding for all these activities: screening, antiviral therapy, and treatment of Hepatitis C-related conditions. This estimate, they said, was developed using the same estimating model that was used to identify the Hepatitis C expenditures reported for fiscal year 2000, rather than the model used to develop fiscal year 2000 and 2001 budget estimates. Also, VA’s briefing paper reported that its budget planning process for fiscal year 2003 will include a more comprehensive revision of its Hepatitis C model. In this regard, VHA proposes the creation of a registry for its patients with Hepatitis C infection. This registry will document important demographic and clinical data, including all inpatient and outpatient care regardless of diagnostic coding of individual episodes of care. VA plans to develop a new software system to interface with existing electronic medical records, which VHA estimates could become operational by the fourth quarter of fiscal year 2002. Distributions to 22 networks appear adequate, given that funding levels could support significant expansion of screening and treatment workloads. VA included $340 million to screen and provide antiviral drug therapy to veterans in its fiscal year 2001 budget request. In November 2000, VHA distributed these funds to the 22 networks as part of their overall patient care funding using its Veterans Equitable Resource Allocation model. At our request, VA identified amounts that each network received as result of the $340 million being included in its distribution. These amounts ranged from $5.7 million to $28.3 million. Our assessment shows that amounts distributed to the 22 networks for fiscal year 2001 should allow each network to provide Hepatitis C screenings for all previously unscreened veterans when they visit VA medical facilities for care during fiscal year 2001. Potential screening workloads for each of the 22 networks range between an estimated 70,000 veterans and 298,000 veterans. Networks could spend an estimated $128 million to screen such potential workloads, leaving $212 million available to provide antiviral therapy. This remaining $212 million appears sufficient to support antiviral therapy workloads for each network at a significantly higher level than fiscal year 2000. Networks, for example, provided a total of 22,275 months of antiviral therapy to 4,455 patients in fiscal year 2000. This workload is the equivalent of 1,856 patient years of care. For fiscal year 2001, networks could double their workloads at a total cost of about $82 million, leaving $130 million for further expansion of antiviral treatment workloads or increased treatments for conditions related to Hepatitis C, such as alcohol or drug treatment. VA recently has reported that its Hepatitis C-related spending estimate for fiscal year 2001 was reduced to $151 million, which represents VA’s best estimate of how much networks are likely to spend for Hepatitis C screening and treatment. VHA budget officials told us, however, that the entire $340 million originally requested remains available to the 22 networks for Hepatitis C use, should networks’ workloads warrant. These funds, however, are not limited to Hepatitis C use. At this time, VA appears unable to develop a budget estimate that can reliably forecast Hepatitis C funding needs. This situation is troublesome, because over the past 30 months, VA has spent over $145 million previously requested for Hepatitis C activities, but has limited experiential data that can be used to estimate Hepatitis C patients’ clinical needs—one of the most critical elements for budget development. VHA, however, appears to be taking reasonable steps to improve future budget estimates and thereby minimize the potential for large differences. Most notably, VHA’s proposed Hepatitis C patient registry could provide critical data needed to improve budgetary estimates, as well as overall program management. VHA, however, estimates that it could take 15 months before this registry becomes operational, which suggests that it may not provide budgetary information in time to help formulate VA’s fiscal year 2004 budget. In the meantime, VHA’s ongoing efforts to upgrade its data collection systems should help improve budget estimates for fiscal year 2003. These efforts, however, have provided only minimal help in the development of VA’s fiscal year 2002 budget for Hepatitis C spending. As a result, it is not possible to conclude with certainty whether VA’s $171 million spending estimate for fiscal year 2002 is appropriate. VA’s budget forecasting uncertainties do not appear to have adversely affected the availability of fiscal year 2001 Hepatitis C funds for the 22 networks. Our assessment shows that, for fiscal year 2001, each network will receive an adequate portion of the $340 million requested to significantly expand Hepatitis C screening and treatment workloads.

The Department of Veterans Affairs (VA) requested and received $195 million for Hepatitis C screening and treatment in fiscal year 2000. VA's budget documentation showed that it had spent $100 million on Hepatitis C screening and treatment, leaving a difference of $95 million between its estimated and actual expenditures. However, GAO's review revealed that the difference was actually much larger--$145 million. VA's documentation showed that only $50 million was used for budgeted activities and $50 million was used for an activity not included in its original budget--treatment of conditions related to Hepatitis C. It appears that VA is unable to develop a budget estimate that can reliably forecast its Hepatitis C funding needs at this time. However, VA's Veterans Health Administration (VHA) appears to be taking reasonable steps to improve future budget estimates and thereby minimize the potential for large differences. Such steps include developing a Hepatitis C patient registry that could provide the critical data needed to improve budgetary estimates. However, this registry could take as long as 15 months to become operational, which suggests that it may not provide budgetary data in time to formulate the 2004 budget. In the meantime, VHA's ongoing efforts to upgrade its data collection systems should help improve budget estimates for fiscal year 2002. These efforts, however, have provided only minimal help in the development of VA's 2002 budget for Hepatitis C spending. As a result, it is not possible to conclude with certainty whether VA's fiscal year 2002 spending estimate of $171 million is appropriate.

Without accurate and timely accounting, financial reporting, and auditing, it is impossible to know how well or poorly IRS has performed in certain facets of its operations such as tax collections. In addition, IRS’ management and the Congress’ ability to make informed decisions that are “fact based” is substantially hindered when the underlying information that provides the basis for decisions is called into question or when fundamental information is lacking. Our efforts to audit IRS accounting records have resulted in disclaimers of opinion each year. This means that we were unable to determine whether the amounts reported by IRS in its financial statements were right or wrong. Financial reporting at this level and auditable financial statements, as required by the CFO Act, are fundamental tenets of effective financial management. Our disclaimer of opinion means that you do not know whether IRS correctly reported the amount of tax it collected in total, how much money IRS has collected by type of tax and on accounts receivables, the cost of its operations including tax systems modernization (TSM), or any other meaningful measure of IRS’ financial performance. In essence, poor accounting and financial reporting, especially when combined with the absence of an audit, obscures facts. As a result, users of information reported or taken from the underlying accounting systems, risk making errant decisions—whether for budget purposes or operationally—because they relied on questionable information in making decisions. Four of the more significant reasons IRS needs good financial management are to provide for its day to day operations basic accounting that meets the minimal financial management goals of the CFO Act for financial reporting, implement effective internal control procedures—including safeguarding of assets, and ensure IRS’ compliance with pertinent laws and regulations—for example, the Anti-deficiency Act and others related to budget integrity; ensure accurate accounting for and reporting of revenue collections in compliance with the law and help the Congress and others assess the impacts of various tax policies on the budget and to offer accountability to the American taxpayer; better assess and improve IRS’ operating performance; and improve its image as a fair tax collector that holds itself to the same or higher standards than it applies to the taxpaying public. Over the 4 years that we have performed financial statement audits at IRS, IRS has moved from an agency that did not and could not reconcile its fund accounts (Fund Balance With Treasury), akin to a taxpayer’s bank account, to an agency that now attempts to reconcile its accounts regularly even though some unresolved amounts still exist and an agency that could not support the propriety of amounts recorded in its accounting records or that they were recorded in the right accounting period to an agency that has developed and is implementing a strategy that if properly carried out, should be able to accomplish both. If IRS does not achieve and sustain the capacity to perform day to day accounting on its over $7 billion in annual appropriations and the more than $1.4 trillion in taxes it collects, it will not be able to credibly report on the cost and effectiveness of its operations. Furthermore, like any other business or individual that may have similar problems, IRS can assert that no money is missing and that it is in compliance with the Anti-Deficiency Act and other laws; however, if these problems persist, it cannot and does not know if its assertion is true. The following example shows the implications of poor accounting and financial reporting for IRS’ day to day operations. In recent years, IRS has reported the costs of TSM along with projected future costs. However, IRS does not know what its TSM costs have been in total or by specific project. Its efforts to achieve cost accounting for TSM obscure the nature and amount of actual costs of TSM projects through grouping large amounts of costs into generic codes as opposed to tracking these costs on a project specific basis. In addition, no separate records were maintained on TSM costs incurred before 1994. Also, IRS cannot readily link costs projected to be incurred in IRS’ investment strategy with costs that are recorded in its accounting records. To do so would require substantial analysis that would likely require using estimating techniques for which results could not be validated. Thus, no credible records exist to make cost-benefit analysis of the overall project or to assess each project segment as it moves through various stages. In addition to day to day accounting and reporting, IRS’ ability to accurately account for and report tax collections is critical to the Congress, the federal government as a whole, and the American taxpayer. IRS’ inability to account for tax collections in total and by type of tax collected reduces the Congress’ and others’ ability to (1) fully assess the effectiveness of tax policies to achieve their intended goals, (2) know the amount the general revenue fund is subsidizing the Social Security Trust Fund, (3) determine whether excise taxes are being collected and distributed in accordance with legislation, and (4) assess IRS’ collection efforts on unpaid taxes. While IRS is making interim efforts to increase its capability to account for tax collections, longer term solutions will be needed before IRS will be able to provide this information in an accurate and timely manner. The following example shows the implications of poor accounting and reporting for tax collections. In recent years, IRS has reported collections against accounts receivables of about $25 billion annually. However, IRS cannot reliably report cash collections on accounts receivable, and the amounts reported are estimates. IRS’ financial management system does not include a detailed record of debtors who owe taxes (a subsidiary accounts receivable record) that tracks these accounts and their related activity from one reporting period to the next. As a result, IRS has to employ sampling techniques to project estimated collections on accounts receivable. The lack of a detailed subsidiary record also severely hampers the ability to readily and reliably assess the performance of IRS’ various collection efforts because reliable information on accounts receivable activity from one period to the next is not readily available. The ability to account for day to day operations and tax collections accurately is the foundation for any efforts to assess and improve IRS’ operational performance. Even though IRS reports that it collects over $1.4 trillion in taxes and processes billions of documents including tax returns, refunds, correspondence, and the manifold other things it does as part of its tax administration mandate, this reporting does not tell you how well it did it or the cost effectiveness of operations. Good financial management would include developing a cost accounting system that accurately tracks the costs of each part of IRS’ operations. In addition, the related outcomes from operational improvement efforts, including additional revenue collected and other qualitative performance indicators, would be accounted for and linked to the respective operational costs associated with accomplishing the outcomes. Right now, IRS does not have the capacity to account for its costs and outcomes in a manner consistent with good financial management. The following example shows the implications of not having good financial management accounting and reporting in place. IRS reported, as part of its compliance initiative budget requests, that it would achieve certain levels of return in collecting unpaid taxes with the additional funding. These requests typically showed past performance from compliance initiatives and projected future collections expected from the proposed compliance initiative. They also typically showed that a substantial return on investment had been and would be achieved from compliance initiatives. IRS’ financial management systems, however, cannot reliably provide information that links cash collected on tax accounts with its respective programs used to collect unpaid taxes and the program’s related costs, including those supported by its compliance initiatives. As a result, the information provided as IRS’ performance from compliance initiatives was prepared using estimates, selective analysis of information, and unvalidated criteria. We found that the reported incremental collections and the associated costs were not verifiable. IRS currently has a system under development (called the Enforcement Revenue Information System) that will attempt to track and correlate this information. Finally, IRS needs to have good financial management to show that it does not have a double standard for financial management—one that taxpayers must adhere to and another that applies to itself. If IRS had to prepare its own tax return, with the many problems we have found during our financial statement audits of IRS, it would not pass the scrutiny of an IRS audit. Many of its expenses would be disallowed because they were unsupported or reported in the wrong year, and the amounts and nature of its revenue would be questioned. As much as any federal agency and more than most, IRS routinely interacts with taxpayers. Taxpayers’ views of the government and on the fairness of tax administration are shaped in a big way by their perception of IRS. For IRS to demand the kind of recordkeeping it requires for taxpayers to support tax returns (a form of financial reporting) and to not be able to sustain a comparable or better set of records to support its own financial reporting does not bode well. These concerns and views have been conveyed in many published articles on the state of financial management at IRS, and these articles clearly show taxpayers’ expectation for IRS to be able to meet the standards that it expects others to meet. The financial management problems I have discussed today are but a few of the challenges that IRS must confront. These, though, must be overcome for IRS to be able to credibly report the results from its operations whether through annually required financial statements or ad hoc reports provided to the Congress and other users on the various aspects of its operations. It is crucial that IRS maintain its capacity to process the billions of documents and handle the multitude of other tax administration challenges that it is responsible for managing. However, as evidenced in the examples I have highlighted for you today, it is comparably crucial that IRS address its many financial management problems so that decisionmakers can make “fact based,” informed decisions on IRS’ staffing levels, tax policies, and other matters based on the verifiable reported results from IRS’ operations. We issued disclaimers of opinion on each of our four annual audits of IRS’ financial statements (from fiscal year 1992 through fiscal year 1995). Notable improvement has occurred across IRS as a result of these audits, which were required by the CFO Act as expanded by the Government Management Reform Act. These two pieces of legislation, and particularly their requirement for audited financial statements, have been instrumental in bringing IRS’ top-level management focus to financial management problems that had been neglected for years. Because of our audit efforts, IRS’ management, for the first time, has a fuller understanding of the depth and breadth of the financial management problems that beset the agency and has, as a result, begun taking actions to address the problems. The reasons for our disclaimers of opinion were IRS’ inability to provide support for its reported over $1.4 trillion in collected revenues in total and by type of tax (i.e., income, social security, etc.), accurately identify and provide support for its reported tax receivables that were estimated in the tens of billions, reconcile its Fund Balance With Treasury accounts (these accounts represent IRS’ remaining approved budgetary spending authority—the federal government equivalent of bank accounts), and accurately account for and provide support for significant amounts of its almost $3 billion annually in nonpayroll expenses to establish that these expenses were appropriately included in the respective years’ reported expenses. IRS has made progress on addressing some of these problems, and we have worked closely with it to identify interim solutions to address the problems that can be fixed quicker and partially address the problems that will require longer term solutions. IRS has developed an action plan, with specific timetables and deliverables, to attempt to address the reasons for our audit disclaimer. To date, IRS reported it has identified substantially all of the reconciling items for its Fund Balance With Treasury accounts, except for certain amounts that IRS has deemed not to be cost-beneficial to research further because they were thought to be insignificant or that IRS had exhausted all avenues available to resolve the difference and could not; designed an interim solution, until longer term solutions can be identified and implemented, to capture the detailed support for revenue and accounts receivable; and begun designing a short-term and a long-term strategy to fix the problems that contribute to its nonpayroll expenses being unsupported or reported in the wrong period. We are currently reviewing progress in each of these areas as part of our audit of IRS’ fiscal year 1996 financial statements and will report the status of these efforts as part of our report that will be issued at the completion of this audit. In closing, I want to reiterate that preparing auditable financial statements and obtaining an unqualified audit opinion on those financial statements are basic to good financial management and one indicator of the condition of financial management of an entity. While IRS has made progress, the catalyst for fixing the problems will be its senior management’s continued commitment as well as sustained effective congressional oversight. IRS has recognized its problems and essentially knows what needs to be done. It is now a matter of carrying out improvement plans. This concludes my statement, and I will be glad to answer any questions. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

GAO discussed the Internal Revenue Service's (IRS) financial management challenges. GAO noted that: (1) GAO efforts to audit IRS accounting records have resulted in a disclaimer of opinions each year; (2) IRS' inability to account for tax collections in total and by type of tax collected reduces the Congress' and others' ability to fully assess the effectiveness of tax policies to achieve their intended goals, know the amount the general revenue fund is subsidizing the Social Security Trust Fund, determine whether excise taxes are being collected and distributed in accordance with legislation, and assess IRS' collection efforts on unpaid taxes; (3) while IRS is making interim efforts to increase its capability to account for tax collections, longer term solutions will be needed before IRS will be able to provide this information in an accurate and timely manner; (4) right now, IRS does not have the capacity to account for its costs and outcomes in a manner consistent with good financial management; (5) IRS needs to have good financial management to show that is does not have a double standard for financial management--one that taxpayers must adhere to and another that applies to itself; (6) IRS has made progress on addressing some of these problems, and GAO has worked closely with it to identify interim solutions to address the problems that can be fixed quicker and partially address the problems that will require longer term solutions; and (7) IRS has developed an action plan, with specific timetables and deliverables, to attempt to address the reasons for GAO's audit disclaimer.

The concept of the single audit was created to replace multiple grant audits with one audit of an entity as a whole. The single audit is an organizationwide audit that focuses on internal control and the recipient’s compliance with laws and regulations governing the federal financial assistance received. The objectives of the Single Audit Act, as amended, are to promote sound financial management, including effective internal controls, with respect to federal awards administered by nonfederal entities; establish uniform requirements for audits of federal awards administered by nonfederal entities; promote the efficient and effective use of audit resources; reduce burdens on state and local governments, Indian tribes, and ensure that federal departments and agencies, to the maximum extent practicable, rely upon and use audit work done pursuant to the act. We studied the single audit process, and in June 1994, we reported on financial management improvements resulting from single audits, areas in which the single audit process could be improved, and ways to maximize the usefulness of single audit reports. We recommended refinements to improve the usefulness of single audits through more effective use of single audit resources and enhanced single audit reporting, and in March 1996, we testified before this Subcommittee on the proposed refinements. Subsequently, in July 1996, the refinements to the 1984 act were enacted. The 1996 amendments were effective for audits of recipients for fiscal years ending June 30, 1997, and after. The refinements cover a range of fundamental areas affecting the single audit process and single audit reporting, including provisions to extend the law to cover all recipients of federal financial assistance, ensure a more cost-beneficial threshold for requiring single audits, more broadly focus audit work on the programs that present the greatest financial risk to the federal government, provide for timely reporting of audit results, provide for summary reporting of audit results, promote better analyses of audit results through establishment of a federal clearinghouse and an automated database, and authorize pilot projects to further streamline the audit process and make it more useful. In June 1997, OMB issued Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The Circular establishes policies to guide implementation of the Single Audit Act 1996 amendments and provides an administrative foundation for uniform audit requirements for nonfederal entities that administer federal awards. OMB also issued a revised OMB Circular A-133 Compliance Supplement. The Compliance Supplement identifies for single auditors the key program requirements that federal agencies believe should be tested in a single audit and provides the audit objective and suggested audit procedures for testing those requirements. We reported in our 1994 report that the Compliance Supplement had not kept pace with changes to program requirements, and had only been updated once since it was issued in 1985. We recommended that the Compliance Supplement be updated at least every 2 years. OMB is now updating this supplement on a more regular basis. The initial Compliance Supplement for audits under the 1996 amendments was issued in June 1997. A revision was issued for June 1998 audits in May 1998, and a revision for June 1999 audits was just recently finalized. We commend OMB for its leadership in developing and issuing the guidance and the collaborative efforts of the federal inspectors general, federal and state program managers, the state auditors, and the public accounting profession in working with OMB proactively to ensure that the guidance effectively implements the 1996 refinements. Highlighted below are several of the key refinements and some of the actions taken to implement them. The 1984 act did not cover colleges, universities, hospitals, or other nonprofit recipients of federal assistance. Instead, audit requirements for these entities were established administratively in a separate OMB audit circular, which in some ways was inconsistent with the audit circular that covered state and local governments. For example, the criteria for determining which programs received detailed audit coverage were different between the circulars. The 1996 amendments expanded the scope of the act to include nonprofit organizations. To implement the 1996 amendments, OMB combined the two audit circulars into one that provided consistent audit requirements for all recipients. The 1996 refinements and OMB Circular A-133 require a single audit for entities that spend $300,000 or more in federal awards, and exempt any entity that spends less than that amount in federal awards. Also, the threshold is based on expenditures rather than receipts. The Congress intended for the entities receiving the greatest amount of federal financial assistance disbursed each year to be audited while exempting entities receiving comparatively small amounts of federal assistance. To achieve this, a $100,000 single audit threshold was included in the 1984 act. The fixed threshold, however, did not take into account future increases in amounts of federal financial assistance. As a result, over time, audit resources were being expended on entities receiving comparatively small amounts of federal financial assistance. In 1984, we reported that setting the threshold for requiring single audits at $100,000 would result in 95 percent of all direct federal financial assistance being covered by single audits. In 1994, we reported that coverage at the same 95 percent level could be achieved with a $300,000 threshold. Also, the refinements require the Director of OMB to biennially review the threshold dollar amount for requiring single audits. The Director may adjust upward the dollar limitation consistent with the Single Audit Act’s purpose. We supported such a provision when the amendments were being considered by the Congress. Exercising this authority in the future will allow the flexibility for the OMB Director to administratively maintain the single audit threshold at a reasonable level without the need for further periodic congressional intervention. As a result of these changes, audit attention is focussed more on entities receiving the largest amounts of federal financial assistance, while the audit burden is eliminated for many entities receiving relatively small amounts of assistance. For example, Pennsylvania reported that this change will still provide audit coverage for 94 percent of the federal funds spent at the local level in the state, while eliminating audit coverage for approximately 1,200 relatively smaller entities in the state. The 1996 amendments require auditors to use a risk-based approach to determine which programs to audit during a single audit. The 1984 act’s criteria for selecting entities’ programs for testing were based only on dollar amounts. The 1996 amendments require OMB to prescribe the risk-based criteria. OMB Circular A-133 prescribes a process to guide auditors based not only on dollar limitations but also on risk factors associated with programs, including entities’ current and prior audit experience with federal programs; the results of recent oversight visits by federal, state, or local agencies; inherent risk of the program. For practical reasons related to the audit procurement process, OMB Circular A-133 allowed auditors to forgo using the risk criteria in the first year audits under the 1996 amendments. Therefore, the risk-based approach will be fully implemented in the second cycle of audits under the 1996 amendments, which started with audits for fiscal years ending June 30, 1998, and is currently in progress. When fully and effectively implemented, this refinement is intended to give auditors greater freedom in targeting risky programs by allowing auditors to use their professional judgment in weighing risk factors to decide whether a higher risk program should be covered by the single audit. Under the 1984 act, OMB guidance provided entity management with a maximum of 13 months from the close of the period audited to submit the audit report to the federal government. The 1996 refinements reduce this maximum time frame to 9 months after the end of the period audited. The amendments provide for a 2-year transition period for meeting the 9-month submission requirement. OMB’s guidelines call for the first audits subject to the revised reporting time frame to be those covering entities’ fiscal years beginning on or after July 1, 1998, and ending June 30, 1999, or after. This means that March 31, 2000, will be the first due date under the new time frame. When fully implemented, this change will improve the timeliness of single audit report information available to federal program mangers who are accountable for administering federal assistance programs. The Congress and federal oversight officials will receive more current information on the recipients’ stewardship of federal assistance funds they receive. The 1996 amendments require that the auditor include in a single audit report a summary of the auditor’s results regarding the nonfederal entity’s financial statements, internal controls, and compliance with laws and regulations. This should allow recipients of single audit reports to focus on the message and critical information resulting from the audit. OMB Circular A-133 requires that a summary of the audit results be included in a schedule of findings and questioned costs. In 1994, we reported that neither the Single Audit Act nor OMB’s implementing guidance then in effect prescribed the format for conveying the results of the auditors’ tests and evaluations. At that time, we found that single audit reports contained a series of as many as eight or more separate reports, including five specifically focused on federal financial assistance, and that significant information was scattered throughout the separate reports. OMB Circular A-133 provides greater flexibility on the organization of the auditor’s reporting than was previously provided. Taking advantage of this flexibility, the American Institute of Certified Public Accountants has issued guidance for practitioners conducting single audits that allows all auditor reporting on federal assistance programs to be included in one report and a schedule of findings and questioned costs. The 1996 refinements call for single audit reports to be provided to a federal clearinghouse designated by the Director of OMB to receive the reports and to assist OMB in carrying out its responsibilities through analysis of the reports. The Bureau of the Census was identified as the Federal Audit Clearinghouse in OMB Circular A-133. In our 1994 report, we noted that data on the results of single audits were not readily accessible and discussed the benefits of compiling the results in an automated database. The clearinghouse has developed a database and is now entering data from the single audit reports it has received. As this initiative progresses, it is expected to become a valuable source of information for OMB, federal oversight officials, and others regarding the expenditure of federal assistance. The 1996 amendments allow the Director of OMB to authorize pilot projects to test ways of further streamlining and improving the usefulness of single audits. We understand that OMB has recently approved the first pilot project under this authority. This first pilot, which was proposed by and will be carried out by the State of Washington, provides for auditing the state education agency and all school districts in the state as one combined entity, rather than having about 200 separate single audits. The Washington State Auditor’s office has submitted a statement for the record that describes in more detail the pilot project. Our preliminary view is that the pilot has the potential to both streamline the audit process and to provide a single report that is more useful to users than the approximately 200 reports it will replace. We fully support testing options for streamlining and increasing the effectiveness of single audits and will monitor this and any other pilot projects that are approved in the future. We are committed to overseeing the successful implementation of the 1996 amendments, working closely with all stakeholders in the single audit process and periodically providing information to the Congress on the progress being made on all of the refinements. Mr. Chairman, this concludes my statement. I will be glad to answer any questions you or other Members may have at this time. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary, VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO discussed the status of efforts to implement the Single Audit Act Amendments of 1996, focusing on: (1) the importance of the 1996 amendments; (2) the actions taken to implement them; and (3) ways in which the refinements will continue to evolve and benefit future single audit efforts. GAO noted that: (1) the concept of the single audit was created to replace multiple grant audits with one audit of an entity as a whole; (2) the objectives of the Single Audit Act, as amended, are to: (a) promote sound financial management, including effective internal controls, with respect to federal awards administered by non-federal entities; (b) establish uniform requirements for audits of federal awards administered by non-federal entities; (c) promote the efficient and effective use of audit resources; (d) reduce burdens on state and local governments, Indian tribes, and nonprofit organizations; and (e) ensure that federal departments and agencies rely upon and use audit work done pursuant to the act; (3) the 1996 amendments were effective for audits of recipients' fiscal years ending June 30, 1997, and after; (4) the refinements cover a range of fundamental areas affecting the single audit process and single audit reporting, including provisions to: (a) extend the law to cover all recipients of federal financial assistance; (b) ensure a more cost-beneficial threshold for requiring single audits; (c) more broadly focus audit work on the programs that present the greatest financial risk to the federal government; (d) provide for timely and summary reporting of audit results; (e) promote better analyses of audit results through establishment of a federal clearinghouse and an automated database; and (f) authorize pilot projects to further streamline the audit process and make it more useful; (5) in June 1997, the Office of Management and Budget (OMB) issued Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; (6) the Circular establishes policies to guide implementation of the Single Audit Act 1996 amendments and provides an administrative foundation for uniform audit requirements for nonfederal entities that administer federal awards; (7) OMB also issued a revised OMB Circular A-133 Compliance Supplement; (8) the Compliance Supplement identifies for single auditors the key program requirements that federal agencies believe should be tested in a single audit and provides the audit objective and suggested audit procedures for testing those requirements; (9) GAO reported in its 1994 report that the Compliance Supplement had not kept pace with changes to program requirements, and had only been updated once since it was issued in 1985; (10) GAO recommended that the Compliance Supplement be updated at least every 2 years; and (11) OMB is now updating this supplement on a more regular basis.

The FEHBP is the largest employer-sponsored health insurance program in the country, providing health insurance coverage for about 8 million federal employees, retirees, and their dependents through contracts with private insurance plans. All currently employed and retired federal employees and their dependents are eligible to enroll in FEHBP plans, and about 85 percent of eligible workers and retirees are enrolled in the program. For 2007, FEHBP offered 284 plans, with 14 fee-for-service (FFS) plans, 209 health maintenance organization (HMO) plans, and 61 consumer-directed health plans (CDHP). About 75 percent of total FEHBP enrollment was concentrated in FFS plans, about 25 percent in HMO plans, and less than 1 percent in CDHPs. Total FEHBP health insurance premiums paid by the government and enrollees were about $31 billion in fiscal year 2005. As set by statute, the government pays 72 percent of the average premium across all FEHBP plans but no more than 75 percent of any particular plan’s premium. The premiums are intended to cover enrollees’ health care costs, plans’ administrative expenses, reserve accounts specified by law, and OPM’s administrative costs. Unlike some other large purchasers, FEHBP offers the same plan choices to currently employed enrollees and retirees, including Medicare-eligible retirees who opt to receive coverage through FEHBP plans rather than through the Medicare program. The plans include benefits for medical services and prescription drugs. By statute, OPM can negotiate contracts with health plans without regard to competitive bidding requirements. Plans meeting the minimum requirements specified in the statute and regulations may participate in the program, and plan contracts may be renewed automatically each year. OPM may terminate contracts if the minimum standards are not met. OPM administers a reserve account within the U.S. Treasury for each FEHBP plan, pursuant to federal regulations. Reserves are funded by a surcharge of up to 3 percent of a plan’s premium. Funds in the reserves above certain minimum balances may be used, under OPM’s guidance, to defray future premium increases, enhance plan benefits, reduce government and enrollee premium contributions, or cover unexpected shortfalls from higher-than-anticipated claims. On January 1, 2006, Medicare began offering prescription drug coverage (also known as Part D) to Medicare-eligible beneficiaries. Employers offering prescription drug coverage to Medicare-eligible retirees enrolled in their plans could, among other options, offer their retirees drug coverage that was actuarially equivalent to standard coverage under Part D and receive a tax-exempt government subsidy to encourage them to retain and enhance their prescription drug coverage. The subsidy provides payments equal to 28 percent of each qualified beneficiary’s prescription drug costs that fall within a certain threshold and is estimated to average about $670 per beneficiary per year. OPM opted not to apply for the retiree drug subsidy. The average annual growth in FEHBP premiums has slowed since 2002— declining each year from 2003 through 2007—and was generally lower than the growth for other purchasers since 2003. After a period of decreases in 1995 and 1996, FEHBP premiums began to increase for 1997, to a peak increase of 12.9 percent for 2002. The growth in average FEHBP premiums began slowing in 2003 and reached a low of 1.8 percent for 2007. The average annual growth in FEHBP premiums was faster than that of CalPERS and surveyed employers from 1997 through 2002—8.5 percent compared with 6.5 percent and 7.1 percent, respectively. However, beginning in 2003, the average annual growth rate in FEHBP premiums was slower than that of CalPERS and surveyed employers—7.3 percent compared with 14.2 percent and 10.5 percent, respectively. (See fig. 1). The premium growth rates for the 10 largest FEHBP plans by enrollment— accounting for about three-quarters of total FEHBP enrollment—ranged from 0 percent to 15.5 percent for 2007. Premium growth rates across the smaller FEHBP plans varied more widely. Regarding enrollee premiums—the share of total premiums paid by enrollees—the growth in average enrollee premiums generally paralleled total premium growth from 1994 through 2007. In 2006, average monthly FEHBP premiums were $415 for individual plans and $942 for family plans in total. The enrollee premium contributions were $123 for individual plans and $278 for family plans. Projected increases in the cost and utilization of services and in the cost of prescription drugs accounted for most of the average annual premium growth across FEHBP plans for the period from 2000 through 2007, although projected withdrawals from reserves offset much of this growth for 2006 and 2007. Absent projected changes associated with other factors, projected increases in the cost and utilization of services and the cost of prescription drugs would have accounted for a 9 percent increase in average premiums for 2007. Projected increases in the cost of and utilization of services alone would have accounted for about a 6 percent increase premiums for 2007, down from a peak of about 10 percent for 2002. Projected increases in the cost of prescription drugs alone would have accounted for about a 3 percent increase in premiums for 2007, down from a peak of about 5 percent for 2002. Enrollee demographics— particularly the aging of the enrollee population—were projected to have less of an effect on premium growth. Projected decreases in the costs associated with certain other factors, including benefit changes that resulted in less generous coverage and enrollee choice of plans—typically the migration to lower-cost plans—generally helped offset average premium growth for 2000 through 2007 to a small extent. Projected withdrawals from reserves offset average premium growth for 2006 and 2007. Officials we interviewed from most of the plans stated that OPM monitored their plans’ reserve levels and worked closely with them to build up or draw down reserve funds gradually to avoid wide fluctuations in premium growth from year to year. Projected additions to reserves nominally contributed to average premium growth—by less than 1 percentage point—for 2000 through 2005. However, projected withdrawals from reserves offset average premium growth by about 2 percentage points for 2006 and 5 percentage points for 2007. (See fig. 2.) We also reviewed detailed data available for five large FEHBP plans on claims actually incurred from 2003 through 2005. These data showed that most of the increase in total expenditures per enrollee was explained by expenditures on prescription drugs (34 percent) and on hospital outpatient services (26 percent). Officials we interviewed from several FEHBP plans stated that the retiree drug subsidy would have had a small effect on premium growth had OPM applied for the subsidy and used it to offset premiums. First, drug costs for Medicare beneficiaries enrolled in these plans accounted for a small proportion of total expenses for all enrollees, and the subsidy would have helped offset less than one-third of these expenses. Second, because the same plans offered to currently employed enrollees were offered to retirees, the effect of the subsidy would have been diluted when spread across all enrollees. However, officials we interviewed from two large plans with high shares of elderly enrollees stated that the subsidy would have lowered premium growth for their plans. Officials from one of these plans estimated that 2006 premium growth could have been 3.5 to 4 percentage points lower. Our analysis of the potential effect of the retiree drug subsidy on all plans in FEHBP showed that had OPM applied for the subsidy and used it to offset premium growth, the subsidy would have lowered the 2006 premium growth by 2.6 percentage points from 6.4 percent to about 4 percent. The reduction in premium growth would have been a onetime reduction for 2006. Absent the drug subsidy, FEHBP premiums in the future would likely be more sensitive to drug cost increases than would be premiums of other large plans that received the retiree drug subsidy for Medicare beneficiaries. OPM officials explained that there was no need to apply for the subsidy because the intent of the subsidy was to encourage employers to continue offering prescription drug coverage to Medicare-eligible enrollees, and FEHBP plans were already doing so. The potential effect of the subsidy on premium growth would also have been uncertain because the statute did not require employers to use the subsidy to mitigate premium growth. Officials we interviewed from most of the FEHBP plans with higher-than- average premium growth in 2006 cited increases in the actual cost and utilization of services and high shares of elderly enrollees and early retirees as key drivers of premium growth. Our analysis of financial data provided by six of these plans showed that the average increase in total expenditures per enrollee from 2003 through 2005 was about 40 percent— compared with the average of 25 percent for five large FEHBP plans that represented about two-thirds of total FEHBP enrollment. From 2001 through 2005, the average age of enrollees across all eight plans with higher-than-average premium growth increased by 2.7 years—compared with an average increase of 0.5 years across all FEHBP plans. Officials we interviewed from most of the FEHBP plans with lower-than- average premium growth in 2006 cited adjustments for previously overestimated projections of cost growth and benefit changes that resulted in less generous coverage for prescription drugs as factors that limited premium growth. Our analysis of financial data provided by two plans showed that per-enrollee expenditures for prescription drugs increased by 3 percent for one plan and 13 percent for the other from 2003 through 2005—compared with 30 percent for the average of the five large FEHBP plans. Also, from 2001 through 2005, the average age of enrollees across all six of these plans decreased by 0.5 years—compared with an average increase of 0.5 years across all FEHBP plans. Mr. Chairman, this concludes my prepared remarks. I would be happy to answer any questions that you or other Members of the subcommittee may have. For future contacts regarding this testimony, please contact John E. Dicken at (202) 512-7119 or dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Randy Dirosa, Assistant Director; Iola D’Souza; and Timothy Walker made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Average health insurance premiums for plans participating in the Federal Employees Health Benefits Program (FEHBP) have risen each year since 1997. These growing premiums result in higher costs to the federal government and plan enrollees. The Office of Personnel Management (OPM) oversees FEHBP, negotiating benefits and premiums and administering reserve accounts that may be used to cover plans' unanticipated spending increases. GAO was asked to discuss its December 22, 2006 report, entitled Federal Employees Health Benefits Program: Premium Growth Has Recently Slowed, and Varies Among Participating Plans (GAO-07-141). In this report, GAO reviewed (1) FEHBP premium trends compared with those of other purchasers, (2) factors contributing to average premium growth across all FEHBP plans, and (3) factors contributing to differing trends among selected FEHBP plans. GAO reviewed data provided by OPM relating to FEHBP premiums and factors contributing to premium growth. For comparison purposes, GAO examined premium data from the California Public Employees' Retirement System (CalPERS) and surveys of other public and private employers. GAO also interviewed officials from OPM and eight FEHBP plans with premium growth that was higher than average and six FEHBP plans with premium growth that was lower than average. Growth in FEHBP premiums recently slowed, from a peak of 12.9 percent for 2002 to 1.8 percent for 2007. Starting in 2003, FEHBP premium growth was generally slower than for other purchasers. Premium growth rates for the 10 largest FEHBP plans by enrollment--accounting for about three-quarters of total enrollment--ranged from 0 percent to 15.5 percent for 2007. Projected increases in the cost and utilization of health care services and in the cost of prescription drugs accounted for most of the average annual FEHBP premium growth for 2000 through 2007. Absent other factors, these increases would have raised 2007 average premiums by 9 percent. Other projected factors, including benefit changes resulting in less generous coverage and enrollee migration to lower-cost plans, slightly offset average premium growth. In 2006 and 2007, projected withdrawals from reserves helped offset average premium growth--by 2 percentage points for 2006 and 5 percentage points for 2007. To explain the factors associated with premium growth, officials GAO interviewed from most of the FEHBP plans with higher-than-average premium growth cited increases in the cost and utilization of services as well as a high share of elderly enrollees and early retirees. Officials GAO interviewed from most plans with lower-than-average premium growth cited adjustments made for previously overestimated projections of cost growth, and some officials cited benefit changes that resulted in less generous coverage for prescription drugs. The plans with lower-than-average premium growth also experienced a decline of 0.5 years in the average age of their enrollees compared with an increase of 0.5 years in the average age of all FEHBP enrollees.

Each year, we issue well over 1,000 audit and evaluation products to assist the Congress in its decision making and oversight responsibilities. As one indicator of the degree to which the Congress relies on us for information and analysis, GAO officials were called to testify 151 times before committees of the Congress in fiscal year 2001. Our audit and evaluation products issued in fiscal year 2001 contained over 1,560 new recommendations targeting improvements in the economy, efficiency, and effectiveness of federal operations and programs that could yield significant financial and other benefits in the future. History tells us that many of these recommendations will contribute to important improvements. At the end of fiscal year 2001, 79 percent of the recommendations we made 4 years ago had been implemented. We use a 4-year interval because our historical data show that agencies often need this length of time to complete action on our recommendations. Actions on the recommendations in our products have a demonstrable effect on the workings of the federal government. During fiscal year 2001, we recorded hundreds of accomplishments providing financial and other benefits that were achieved based on actions taken by the Congress and federal agencies, and we made numerous other contributions that provided information or recommendations aiding congressional decision making or informing the public debate to a significant extent. For example, our findings and recommendations to improve government operations and reduce costs contributed to legislative and executive actions that yielded over $26.4 billion in measurable financial benefits. We achieve financial benefits when our findings and recommendations are used to make government services more efficient, improve the budgeting and spending of tax dollars, or strengthen the management of federal resources. Not all actions on our findings and recommendations produce measurable financial benefits. We recorded 799 actions that the Congress or executive agencies had taken based on our recommendations to improve the government’s accountability, operations, or services. The actions reported for fiscal year 2001 include actions to combat terrorism, strengthen public safety and consumer protection, improve computer security controls, and establish more effective and efficient government operations. In 1990, we began an effort to identify for the Congress those federal programs, functions, and operations that are most at risk for waste, fraud, abuse, and mismanagement. Every 2 years since 1993, with the beginning of each new Congress, we have published a summary assessment of those high-risk programs, functions, and operations. In 1999, we added the Performance and Accountability Series to identify the major performance and management issues confronting the primary executive branch agencies. In our January 2001 Performance and Accountability Series and High-Risk Update, we identified 97 major management challenges and program risks at 21 federal agencies as well as 22 high-risk areas and the actions needed to address these serious problems. Figure 1 shows the list, as of May 2002, of high-risk issues including the Postal Service’s transformational efforts and long-term outlook, which we added to the high-risk list in April 2001. Congressional leaders, who have historically referred extensively to these series in framing oversight hearing agendas, have strongly urged the administration and individual agencies to develop specific performance goals to address these pervasive problems. In addition, the President’s recently issued management agenda for reforming the federal government mirrors many of the issues that GAO has identified and reported on in these series, including a governmentwide initiative to focus on strategic management of human capital. We will be issuing a new Performance and Accountability Series and High-Risk Update at the start of the new Congress this coming January. The Government Management Reform Act of 1994 requires (1) GAO to annually audit the federal government’s consolidated financial statements and (2) the inspectors general of the 24 major federal agencies to annually audit the agencywide financial statements prepared by those agencies. Consistent with our approach on a full range of management and program issues, our work on the consolidated audit is done in coordination and cooperation with the inspectors general. The Comptroller General reported on March 29, 2002, on the U.S. government’s consolidated financial statements for fiscal years 2001 and 2000. As in the previous 4 fiscal years, we were unable to express an opinion on the consolidated financial statements because of certain material weaknesses in internal control and accounting and reporting issues. These conditions prevented us from being able to provide the Congress and the American citizens an opinion as to whether the consolidated financial statements are fairly stated in conformity with U.S. generally accepted accounting principles. While significant and important progress is being made in addressing the impediments to an opinion on the U.S. government’s consolidated financial statements, fundamental problems continue to (1) hamper the government’s ability to accurately report a significant portion of its assets, liabilities, and costs, (2) affect the government’s ability to accurately measure the full costs and financial performance of certain programs and effectively manage related operations, and (3) significantly impair the government’s ability to adequately safeguard certain significant assets and properly record various transactions. In August 2001, the principals of the Joint Financial Management Improvement Program (JFMIP)—Secretary of the Treasury O’Neill, Office of Management and Budget Director Daniels, Office of Personnel Management Director James, and Comptroller General Walker, head of GAO and chair of the group—began a series of periodic meetings that have resulted in unprecedented substantive deliberations and agreements focused on key financial management reforms issues such as better defining measures for financial management success. These measures include being able to routinely provide timely, accurate, and useful financial information and having no material internal control weaknesses or material noncompliance with applicable laws, regulations, and requirements. In addition, the JFMIP principals have agreed to (1) significantly accelerate financial statement reporting so that the government’s financial statements are more timely and (2) discourage costly efforts designed to obtain unqualified opinions on financial statements without addressing underlying systems challenges. For fiscal year 2004, audited agency financial statements are to be issued no later than November 15, with the U.S. government’s audited consolidated financial statement becoming due by December 15. GAO also issues a wide range of standards, guidance, and management tools intended to assist the Congress and agencies in putting in place the structures, processes, and procedures needed to help avoid problems before they occur or develop into full-blown crises. For example, the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires GAO to issue standards for internal control in government. Internal control is an integral part of an organization’s management that provides reasonable assurance that the following objectives are being achieved: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. As such, the internal control standards that GAO issues provide an overall framework for establishing and maintaining internal control, and identifying and addressing major performance and management challenges and areas at greatest risk to waste, fraud, abuse, and mismanagement. A positive control environment is the foundation for the standards. Management and employees should establish and maintain an environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management. One factor is the integrity and ethical values maintained and demonstrated by management and staff. Agency management plays a key role in providing leadership in this area, especially setting and maintaining the organization’s ethical tone, providing guidance for proper behavior, removing temptations for unethical behavior, and providing discipline when appropriate. In addition to setting standards for internal control, GAO participates in the setting of the federal government’s accounting standards and is responsible for setting the generally accepted government auditing standards for auditors of federal programs and assistance. GAO also assists congressional and executive branch decision makers by issuing guides and tools for effective public management. For example, in addition to setting standards for internal control, we have issued detailed guidance and management tools to assist agencies in maintaining or implementing effective internal control and, when needed, to help determine what, where, and how improvements can be made. We have also issued guidance for agencies to address the critical governmentwide high-risk challenge of computer security. This work draws on lessons from leading public and private organizations to show the Congress and federal agencies the steps that can be taken to protect the integrity, confidentiality, and availability of the government’s data and the systems it relies on. Similarly, we have published guidance for the Congress and managers on dealing with the other governmentwide high-risk issue— human capital. These guides on human capital are assisting managers in adopting a more strategic approach to the use of their organization’s most important asset—its people. Overall, GAO has undertaken a major effort to identify ways agencies can effectively implement the statutory framework that the Congress has put in place to create a more results-oriented and accountable federal government. GAO has an investigations unit that focuses on investigating and exposing potential criminal misconduct and serious wrongdoing in programs that receive federal funds. The primary mission of this unit is to conduct investigations of alleged violations of federal criminal law and serious wrongdoing and to review law enforcement programs and operations, as requested by the Congress and the Comptroller General. Through investigations, our special investigations team develops examples of misconduct and wrongdoing that illustrate program weaknesses, demonstrate potential for abuse, and provide supporting evidence for GAO recommendations and congressional action. Investigators often work directly with other GAO teams on collaborative efforts that enhance the agency’s overall ability to identify and report on wrongdoing. Key issues in the investigations area are: fraudulent activity and regulatory noncompliance in federal unethical conduct by federal employees and government officials, as well fraud and misconduct in grant, loan, and entitlement programs; adequacy of federal agencies’ security systems, controls, and property as tested through proactive special operations; and integrity of federal law enforcement and investigative programs. One example of these collaborations between our investigations team and audit and evaluations teams is the use of forensic audit techniques to identify instances of fraud, waste, and abuse at various agencies. This approach combines financial auditor and special investigator skills with data mining and file comparison techniques to identify unusual trends and inconsistencies in agency records that may indicate fraudulent or improper activity. For example, by comparing a list of individuals who received government grants and loans to a list of people whose social security numbers indicate they have died, we identified people improperly receiving benefits. Data mining techniques have also been used to identify unusual government purchase card activity that, upon further investigation, were determined to be abusive and improper purchases. Overall, in 2001 GAO referred 61 matters to the Department of Justice and other law enforcement and regulatory agencies for investigation, and its special investigations accounted for $1.8 billion in financial benefits. GAO also maintains a system for receiving reports from the public on waste, fraud, and abuse in federally funded programs. Known as the GAO FraudNET, the system received more than 800 cases in 2001. Reports of alleged mismanagement and wrongdoing covered topics as varied as misappropriation of funds, security violations, and contractor fraud. Most of the matters reported to GAO were referred to inspectors general of the executive branch for further action or information. Other matters that indicate broader problems or systemic issues of congressional interest are referred to GAO’s investigations unit or other GAO teams.

The United States General Accounting Office (GAO) is an independent, professional, nonpartisan agency in the legislative branch that is commonly referred to as the investigative arm of Congress. Congress created GAO in the Budget and Accounting Act of 1921 to assist in the discharge of its core constitutional powers--the power to investigate and oversee the activities of the executive branch, the power to control the use of federal funds, and the power to make laws. All of GAO's efforts on behalf of Congress are guided by three core values: (1) Accountability--GAO helps Congress oversee federal programs and operations to ensure accountability to the American people; (2) Integrity--GAO sets high standards in the conduct of its work. GAO takes a professional, objective, fact-based, non-partisan, nonideological, fair, and balanced approach on all activities; and (3) Reliability--GAO produces high-quality reports, testimonies, briefings, legal opinions, and other products and services that are timely, accurate, useful, clear, and candid.

Defense, like the rest of the government and the private sector, is relying on technology to make itself more efficient. The Department is depending more and more on high-performance computers linked together in a vast collection of networks, many of which are themselves connected to the worldwide Internet. Hackers have been exploiting security weaknesses of systems connected to the Internet for years, they have more tools and techniques than ever before, and the number of attacks is growing every day. These attacks, coupled with the rapid growth and reliance on interconnected computers, have turned cyberspace into a veritable electronic frontier. The need to secure information systems has never been greater, but the task is complex and often difficult to understand. Information systems security is complicated not only by rapid growth in computer use and computer crime, but also by the complexity of computer networks. Most large organizations today like Defense have a conglomeration of mainframes, PCs, routers, servers, software, applications, and external connections. In addition, since absolute protection is not feasible, developing effective information systems security involves an often complicated set of trade-offs. Organizations have to consider the (1) type and sensitivity of the information to be protected, (2) vulnerabilities of the computers and networks, (3) various threats, including hackers, thieves, disgruntled employees, competitors, and in Defense’s case, foreign adversaries and spies, (4) countermeasures available to combat the problem, and (5) costs. In managing security risks, organizations must decide how great the risk is to their systems and information, what they are going to do to defend themselves, and what risks they are willing to accept. In most cases, a prudent approach involves selecting an appropriate level of protection and then ensuring that any security breaches that do occur can be effectively detected and countered. This generally means that controls be established in a number of areas, including, but not limited to: a comprehensive security program with top management commitment, sufficient resources, and clearly assigned roles and responsibilities for those responsible for the program’s implementation; clear, consistent, and up-to-date information security policies and vulnerability assessments to identify security weaknesses; awareness training to ensure that computer users understand the security risks associated with networked computers; assurance that systems administrators and information security officials have sufficient time and training to do their jobs properly; cost-effective use of technical and automated security solutions; and a robust incident response capability to detect and react to attacks and to aggressively track and prosecute attackers. The Department of Defense’s computer systems are being attacked every day. Although Defense does not know exactly how often hackers try to break into its computers, the Defense Information Systems Agency (DISA) estimates that as many as 250,000 attacks may have occurred last year. According to DISA, the number of attacks has been increasing each year for the past few years, and that trend is expected to continue. Equally worrisome are DISA’s internal test results; in assessing vulnerabilities, DISA attacks and successfully penetrates Defense systems 65 percent of the time. Not all hacker attacks result in actual intrusions into computer systems; some are attempts to obtain information on systems in preparation for future attacks, while others are made by the curious or those who wish to challenge the Department’s computer defenses. For example, Air Force officials at Wright-Patterson Air Force Base told us that, on average, they receive 3,000 to 4,000 attempts to access information each month from countries all around the world. into sensitive Defense systems. They have “crashed” entire systems and networks, denying computer service to authorized users and preventing Defense personnel from performing their duties. These are the attacks that warrant the most concern and highlight the need for greater information systems security at Defense. To further demonstrate the seriousness of some these attacks, I would like to briefly discuss the 1994 hacker attacks the Subcommittee asked us to specifically examine on the Air Force’s Rome Laboratory in Rome, New York. This incident demonstrates how easy it is for hackers to gain access to our nation’s most important and advanced research. Rome Laboratory is the Air Force’s premier command and control research facility—it works on very sensitive research projects such as artificial intelligence and radar guidance. In March and April 1994, a British hacker known as “Datastream Cowboy” and another hacker called “Kuji” (hackers commonly use nicknames or “handles” to conceal their real identities) attacked Rome Laboratory’s computer systems over 150 times. To make tracing their attacks more difficult, the hackers weaved their way through international phone switches to a computer modem in Manhattan. The two hackers used fairly common hacker techniques, including loading “Trojan horses” and “sniffer” programs, to break into the lab’s systems. Trojan horses are programs that when called by authorized users perform useful functions, but that also perform unauthorized functions, often usurping the privileges of the user. They may also add “backdoors” into a system which hackers can exploit. Sniffer programs surreptitiously collect information passing through networks, including user identifications and passwords. The hackers took control of the lab’s network, ultimately taking all 33 subnetworks off-line for several days. The attacks were initially suspected by a systems administrator at the lab who noticed an unauthorized file on her system. After determining that their systems were under attack, Rome Laboratory officials notified the Air Force Information Warfare Center and the Air Force Office of Special Investigations. Working together, these Air Force officials regained control of the lab’s network and systems. They also monitored the hackers by establishing an “electronic fishbowl” in which they limited the intruders’ access to one isolated subnetwork. tactics, such as where the enemy is located and what targets are to be attacked. The hackers also launched other attacks from the lab’s computer systems, gaining access to systems at NASA’s Goddard Space Flight Center, Wright-Patterson Air Force Base, and Defense contractors around the country. Datastream Cowboy was caught in Great Britain by Scotland Yard authorities, due in large part to the Air Force’s monitoring and investigative efforts. Legal proceedings are still pending against the hacker for illegally using and stealing British telephone service; no charges have been brought against him for breaking into U.S. military computer systems. Kuji was never caught. Consequently, no one knows what happened to the data stolen from Rome Lab. In general, Defense does not assess the damage from the computer attacks because it can be expensive, time-consuming and technically difficult. But in the Rome case, Air Force Information Warfare Center staff estimated that the attacks on the Rome Lab cost the government over half a million dollars. This included costs for time spent to take the lab’s systems off the networks, verify the integrity of the systems, install security “patches,” and restore computer service. It also included costs for the Office of Special Investigations and Warfare Center personnel deployed to the lab. But the estimate did not include the value of the research data that was compromised by the hackers. Information in general is very difficult to value and appraise. In addition, the value of sensitive Defense data may be very different to an adversary than to the military, and may vary a great deal, depending on the adversary. Rome Lab officials told us, however, that if their air tasking order research project had been damaged beyond repair, it would have cost about $4 million and 3 years to reconstruct it. In addition, the Air Force could not determine whether any of the attacks were a threat to national security. It is quite possible that at least one of the hackers may have been working for a foreign country interested in obtaining military research data or learning what the Air Force is working on. While this is only one example of the thousands of attacks Defense experiences each year, it demonstrates the damage caused and the costs incurred to verify sensitive data and patch systems. systems experts believe that computer attacks are capable of disrupting communications, stealing sensitive information, and threatening our ability to execute military operations. The National Security Agency and others have acknowledged that potential adversaries are attempting to obtain such sensitive information by hacking into military computer systems. Countries today do not have to be military superpowers with large standing armies, fleets of battleships, or squadrons of fighters to gain a competitive edge. Instead, all they really need to steal sensitive data or shut down military computers is a $2,000 computer and modem and a connection to the Internet. Defense officials and information systems security experts believe that over 120 foreign countries are developing information warfare techniques. These techniques allow our enemies to seize control of or harm sensitive Defense information systems or public networks which Defense relies upon for communications. Terrorists or other adversaries now have the ability to launch untraceable attacks from anywhere in the world. They could infect critical systems, including weapons and command and control systems, with sophisticated computer viruses, potentially causing them to malfunction. They could also prevent our military forces from communicating and disrupt our supply and logistics lines by attacking key Defense systems. Several studies document this looming problem. An October 1994 report entitled Information Architecture for the Battlefield prepared by the Defense Science Board underscores that a structured information systems attack could be prepared and exercised by a foreign country or terrorist group under the guise of unstructured hacker-like activity and, thus, could “cripple U.S. operational readiness and military effectiveness.” The Board added that “the threat . . . goes well beyond the Department. Every aspect of modern life is tied to a computer system at some point, and most of these systems are relatively unprotected.” Given our dependence on these systems, information warfare has the potential to be an inexpensive but highly effective tactic which many countries now plan to use as part of their overall security strategy. methods of attack. Defense has taken steps to strengthen its information systems security, but it has not established a comprehensive and effective security program that gives sufficient priority to protecting its information systems. Some elements of a good security program are in place. Most notably, Defense has implemented a formal information warfare program. DISA is in charge of the program and has developed and begun implementing a plan for protecting against, detecting, and reacting to information systems attacks. DISA established its Global Defensive Information Warfare Control Center and its Automated Systems Security Incident Support Team (ASSIST) in Arlington, Virginia. Both the center and ASSIST provide centrally coordinated, around-the-clock response to attacks and assistance to the entire Department. Each of the military services has established computer emergency response capabilities, as well. The Air Force is widely recognized as the leader among the services for having developed considerable experience and technical resources to defend its information systems. However, many of Defense’s policies relating to computer systems attacks are outdated and inconsistent. They do not set any standards or require actions for what we and many others believe are important security activities, such as periodic vulnerability assessments, internal reporting of attacks, correction of known vulnerabilities, and damage assessments. In addition, many of the Department’s system and network administrators are not adequately trained and do not have enough time to do their jobs properly. Computer users throughout the Department are often unaware of fundamental security practices, such as using sound passwords and protecting them. Further, Defense’s efforts to develop automated programs and use other technology to help counter information systems attacks need to be much more aggressive and implemented on a departmentwide basis, rather than in the few current locations. administrators receive enough time and training to do their jobs properly. Further, we recommend that Defense assess its incident response capability to determine its sufficiency in light of the growing threat, and implement more proactive and aggressive measures to detect systems attacks. The fact that these important elements are missing indicates that Defense has not adequately prioritized the need to protect its information resources. Top management at Defense needs to ensure that sufficient resources are devoted to information security and that corrective measures are successfully implemented. We have testified and reported on information systems weaknesses for several years now. In November 1991, I testified before the Subcommittee on Government Information and Regulation on a group of Dutch hackers breaking into Defense systems. Some of the issues and problems we discussed here today existed then; some have worsened, and new challenges arise daily as technology continues to advance. Without increased attention by Defense top management and continued oversight by the Congress, security weaknesses will continue. Hackers and our adversaries will keep compromising sensitive Defense systems. That completes my testimony. I’ll be happy to answer any questions you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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GAO discussed information security procedures at the Department of Defense (DOD). GAO noted that: (1) as many as 250,000 DOD computer systems were attacked in 1995; (2) hackers successfully penetrate DOD computer systems 65 percent of the time; (3) hackers attack DOD computer systems to steal and destroy sensitive data and install reentry devices; (4) these attacks cost the government over half a million dollars, including the cost of disconnecting the system, verifying the system's integrity, installing security patches, and restoring computer services; (5) hackers are capable of disrupting communications and threatening U.S. military operations; (6) DOD faces a huge challenge in protecting its computer systems due to the size of its information infrastructure, increasing amounts of sensitive data, Internet use, and skilled hackers; (7) DOD has established a Global Information Warfare Control Center and a Automated Systems Security Incident Support Team to provide around-the-clock service and respond to computer attacks; (8) many DOD policies pertaining to computer security are outdated and inconsistent and DOD system and network administrator's are inadequately trained to perform their jobs; and (9) DOD needs to be more aggressive in developing an automated program that responds to computer attacks.

Federal regulations and EEOC policy require federal agencies to report certain EEO complaint-related data annually to EEOC. Agencies report these data on EEOC form 462, Annual Federal Equal Employment Opportunity Statistical Report of Discrimination Complaints. EEOC compiles the data from the agencies for publication in the annual Federal Sector Report on EEO Complaints Processing and Appeals. According to EEOC Management Directive 110, agencies should make every effort to ensure accurate recordkeeping and reporting of these data. In our recent report, we said that reliable data are important to program managers, decisionmakers, and EEOC in identifying the nature and extent of workplace conflicts. We analyzed the data contained in EEOC’s annual federal sector reports to prepare our reports dealing with employment discrimination complaint trends. Because the Postal Service accounts for a large share of complaints filed by federal employees with their agencies, we analyzed forms 462 submitted by the Service for fiscal year 1991 through fiscal year 1998, as well as other complaint data provided at our request. Because our studies generally focused on trends in the number and age of unresolved complaints in inventory, the number of complaints filed, the bases and issues cited in complaints, and complaint processing times, we did not examine the full scope of data reported on form 462. Although we did not examine the Service’s controls for ensuring accurate recordkeeping and reporting or validate the data the Service reported, we examined the data for obvious inconsistencies or irregularities. We requested comments on a draft of this report from the Postmaster General. The Postal Service’s oral comments are discussed near the end of this letter. We performed our work in July and August 1999 in accordance with generally accepted government auditing standards. The most significant error that we identified in Postal Service data involved the number of race-based complaints filed by white postal workers. EEOC requires agencies to report the bases (e.g., race, sex, disability) for complaints that employees file. For fiscal year 1996, the Postal Service had reported that 9,044 (about 68 percent) of the 13,252 complaints filed contained allegations by white postal workers of race discrimination. For fiscal year 1997, the Service had reported that 10,040 (70 percent) of the 14,326 complaints filed contained such allegations. These figures represented significant increases over the figures reported for previous fiscal years. For example, in fiscal year 1995, the Service reported to EEOC that 1,534 of the complaints filed contained allegations by white postal workers of race discrimination. In fiscal year 1994, the figure reported was 2,688. We questioned Postal Service officials about the sudden increase in the number of complaints containing allegations by white postal workers of race discrimination. The officials said that they also had been concerned about these data, and had discussed the data with EEOC officials. After we raised this issue, the officials intensified their efforts to identify the true magnitude and source of the increase and subsequently found that a computer programming error had resulted in a significant overcounting of these complaints. They said that the corrected figures were 1,505 for fiscal year 1996 (or 11.4 percent of the 13,252 complaints filed) and 1,654 for fiscal year 1997 (or 11.5 percent of the 14,326 complaints filed). They also provided these figures to EEOC. In explaining how the error occurred, the officials said that each automated case record in the complaint information system contains a data field for race, which is to be filled in with a code for the applicable racial category when an employee alleges racial discrimination. If an employee alleges discrimination on a basis or bases other than race, this data field is to remain blank. According to the officials, the faulty computer program counted each blank racial data field as indicating an allegation by a white employee of racial discrimination. These results were then tallied with complaints in which the data field was properly coded as an allegation by a white employee of racial discrimination. The officials advised us that the programming error had been corrected. Although we did not examine the computer program, our review of the data reported on the Postal Service’s form 462 for fiscal year 1998 appeared to confirm that the correction had been made. Other errors that we found in data that the Service reported on form 462 related to the age of cases in the inventory of unresolved complaints. EEOC requires agencies to report statistics on the length of time that cases have been in the agencies’ inventories of unresolved complaints, from the date of complaint filing. These data are broken out by each stage of the complaint process—acceptance/dismissal, investigation, hearing, and final decision. We questioned figures for fiscal year 1997 about the age of (1) cases pending acceptance/dismissal, because the reported total number of days such cases had been in inventory seemed unusually high, and (2) cases pending a hearing before an EEOC administrative judge, because the reported average age of such cases seemed unusually low. After we brought the questionable figures to the attention of the Postal Service EEO Compliance and Appeals Manager, he provided corrected figures and said that the errors, like the problem with the reporting of complaint bases described previously, were due to a computer programming error. He said that the faulty computer program had been corrected. In addition, the Service provided the corrected figures to EEOC. We also found that the Postal Service has not been reporting all issues— the specific conditions or events that are the subjects of complaints—as EEOC requires. Because some complaints involve more than one basis or more than one issue, EEOC’s instructions for completing part IV of form 462 require agencies to include all bases and issues raised in complaints. While the Postal Service’s complaint information system allows more than one complaint basis (like racial and sexual discrimination) to be recorded, the system’s data field allows only one “primary” issue (like an adverse personnel action) to be recorded for each complaint, regardless of the number of issues that a complainant raises. Although this practice results in underreporting complainants’ issues to EEOC, the EEO Compliance and Appeals Manager said that the Postal Service adopted this approach to give the data more focus by identifying the primary issues driving postal workers’ complaints. This matter has not been resolved. In order to report more than one issue for each complaint, the Service would have to modify the automated complaint information system to allow for the recording of more than one issue for a complaint. However, we have reported that part IV of form 462 for reporting statistics on bases and issues is methodologically flawed and results in an overcounting of bases and issues. We have made a recommendation to EEOC that it correct this problem, and the agency said that it would address our concerns. Therefore, we believe that it would be prudent for the Postal Service to wait for EEOC to resolve this issue before modifying its data recording and reporting practices. In addition to the discrepancies already noted, we found that the Postal Service’s statistical reports to EEOC for fiscal years 1996 and 1997 did not include data for complaints involving certain categories of primary issues. The form 462, which EEOC requires agencies to complete, contains a list of issues. For its own management needs, the Service supplemented EEOC’s list with three additional categories of specific issues: (1) denial of worker’s compensation, (2) leave, and (3) other pay. However, we found that in completing part IV of EEOC form 462 for fiscal years 1996 and 1997, the Service omitted the data about complaints in which these additional issues were cited. After we brought our observations to the attention of Service officials, they provided the omitted data to EEOC. The officials explained that, for fiscal year 1998, in lieu of including data about complaints involving the three additional issues on part IV of form 462, they provided these data separately to EEOC. The EEO Compliance and Appeals Manager explained that he did not want to “force fit” the data about the three issues into one of the categories listed on the form 462, such as “other,” because the issues thereby would lose their identity and significance. He added that part IV of form 462 needs to be revised because the categories of issues listed are too broad and do not recognize emerging issues. Further, we found certain underreportings of the bases and issues cited in complaints for fiscal year 1995. After we brought the underreporting to the attention of the Postal Service officials, they provided corrected data to EEOC and us. Service officials attributed this underreporting to difficulties associated with implementing a new complaint information system in fiscal year 1995. Both Postal Service management and EEOC need complete, accurate, and reliable information to deal with EEO-related workplace conflicts. Discrepancies that we found in our limited review of the Postal Service’s EEO complaint data raised questions about the completeness, accuracy, and reliability of the reported data, particularly data generated through the automated complaint information system. All but one of the reporting problems we found and their underlying causes appear to have been corrected. However, because we examined only a limited portion of the reported data for obvious discrepancies and because the errors we identified were related to data generated by an automated complaint information system put in place in 1995, we have concerns about the completeness, accuracy, and reliability of the data that we did not examine. To help ensure that the EEO complaint data submitted to EEOC are complete, accurate, and reliable, we recommend that you review the Postal Service’s controls over the recording and reporting of these data, including evaluating the computer programs that generate data to prepare the EEOC form 462, Annual Federal Equal Employment Opportunity Statistical Report of Discrimination Complaints. We recognize that recording and reporting issues raised in complaints are matters that cannot be completely addressed until EEOC resolves the methodological flaws in part IV of form 462. In oral comments on a draft of this report made on August 20, 1999, the Postal Service Manager, EEO Compliance and Appeals, generally concurred with our observations and offered comments of a clarifying nature. In response to our recommendation that the Service’s controls over the recording and reporting of EEO complaint data to EEOC be reviewed, this official said that the Postal Service plans to adopt more comprehensive management controls to ensure that the data submitted are complete, accurate, and reliable. The official further said that these controls would involve (1) an analysis of trend data to identify anomalies and (2) an examination of data categories in which discrepancies have previously been found. He also said that complaint information system controls would be examined to determine whether they ensure that data recorded and reported are complete, accurate, and reliable. He said, however, that because the complaint information system has been certified for year 2000 compatibility and because the Service has decided not to modify any computer systems until March 2000, any modifications to improve the complaint system will not be made until then. We believe that the actions the Postal Service proposes, if carried out, will address the substance of our recommendation. We are sending copies of this report to Senators Daniel K. Akaka, Thad Cochran, Joseph I. Lieberman, and Fred Thompson and Representatives Robert E. Andrews, John A. Boehner, Dan Burton, William L. Clay, Elijah E. Cummings, Chaka Fattah, William F. Goodling, Steny H. Hoyer, Jim Kolbe, John M. McHugh, David Obey, Harold Rogers, Joe Scarborough, Jose E. Serrano, Henry A. Waxman, and C. W. Bill Young in their capacities as Chair or Ranking Minority Member of Senate and House Committees and Subcommittees. In addition, we will send a copy to Representative Albert R. Wynn. We will also send copies to the Honorable Ida L. Castro, Chairwoman, EEOC; the Honorable Janice R. Lachance, Director, Office of Personnel Management; the Honorable Jacob Lew, Director, Office of Management and Budget; and other interested parties. We will make copies of this report available to others on request. Because this report contains a recommendation to you, you are required by 31 U.S.C. 720 to submit a written statement on actions taken on this recommendation to the Senate Committee on Governmental Affairs and the House Committee on Government Reform not later than 60 days after the date of this report and to the House and Senate Committees on Appropriations with the agency’s first request for appropriations made more than 60 days after the date of this report. If you or your staff have any questions concerning this report, please contact me or Stephen Altman on (202) 512-8676. Other major contributors to this report were Anthony P. Lofaro, Gary V. Lawson, and Sharon T. Hogan. Michael Brostek Associate Director, Federal Management and Workforce Issues The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touch- tone phone. A recorded menu will provide information on how to obtain these lists.

GAO reviewed certain discrepancies in the complaint data that the Postal Service reported to the Equal Employment Opportunity Commission (EEOC) and the need for the Service to take additional steps to ensure that such data are complete, accurate, and reliable. GAO noted that: (1) in GAO's limited analyses of the data the Service reported to EEOC, GAO found errors in statistics on the underlying bases for EEO complaints and on the length of time complaints had been in inventory; (2) GAO also found that required data on the issues raised in complaint information system; (3) these discrepancies were generally linked to statistical reports generated by the Service's automated complaint information system; (4) after GAO brought these discrepancies to the attention of Postal Service staff, they promptly corrected them and appeared to correct the underlying causes for the errors, with one exception; (5) that situation need not be resolved until EEOC revises its reporting form; and (6) because GAO examined only a portion of the reported data for obvious discrepancies and because the errors GAO identified were related to data generated by an automated complaint information system put in place in 1995, GAO has concerns about the completeness, accuracy, and reliability of the data that GAO did not examined.

While the U.S. government supports a wide variety of programs and activities for global food security, it lacks comprehensive data on funding. We found that it is difficult to readily determine the full extent of such programs and activities and to estimate precisely the total amount of funding that the U.S. government as a whole allocates to global food security. In response to our data collection instrument to the 10 agencies, 7 agencies reported providing monetary assistance for global food security programs and activities in fiscal year 2008, based on the working definition we developed for this purpose with agency input. Figure 1 summarizes the agencies’ responses on the types of global food security programs and activities and table 1 summarizes the funding levels. (The agencies are listed in order from highest to lowest amount of funding provided.) USAID and USDA reported providing the broadest array of global food security programs and activities. USAID, MCC, Treasury (through its participation in multilateral development institutions), USDA, and State provide the highest levels of funding to address food insecurity in developing countries. In addition, USTDA and DOD provide some food security-related assistance. These 7 agencies reported directing at least $5 billion in fiscal year 2008 to global food security, with food aid accounting for about half of this funding. However, the actual total level of funding is likely greater. The agencies did not provide us with comprehensive funding data due to two key factors. First, a commonly accepted governmentwide operational definition of what constitutes global food security programs and activities has not been developed. An operational definition accepted by all U.S. agencies would enable them to apply it at the program level for planning and budgeting purposes. The agencies also lack reporting requirements to routinely capture data on all relevant funds. Second, some agencies’ management systems are inadequate for tracking and reporting food security funding data comprehensively and consistently. Most notably, USAID and State—which both use the Foreign Assistance Coordination and Tracking System (FACTS) database for tracking foreign assistance— failed to include a very large amount of food aid funding in that database. In its initial response to our instrument, USAID, using FACTS, reported that in fiscal year 2008 the agency’s planned appropriations for global food security included about $860 million for Food for Peace Title II emergency food aid. However, we noticed a very large discrepancy between the FACTS-generated $860 million and two other sources of information on emergency food aid funding: (1) the $1.7 billion that USAID allocated to emergency food aid from the congressional appropriations for Title II food aid for fiscal year 2008, and (2) about $2 billion in emergency food aid funding reported by USAID in its International Food Assistance Report for fiscal year 2008. USAID officials reported that USAID has checks in place to ensure the accuracy of the data entered by its overseas missions and most headquarters bureaus. However, the magnitude of the discrepancy for emergency food aid, which is USAID’s global food security program with the highest funding level, raises questions about the data management and verification procedures in FACTS, particularly with regard to the Food for Peace program. While the administration is making progress toward finalizing a governmentwide global food security strategy through improved interagency coordination at the headquarters level, its efforts are vulnerable to weaknesses in data and risks associated with the host country-led approach called for in the strategy under development. Two interagency processes established in April 2009—the NSC Interagency Policy Committee on Agriculture and Food Security and the GHFSI working team—are improving headquarters coordination among numerous agencies, as shown in figure 2. The strategy under development is embodied in the Consultation Document issued in September 2009, which is being expanded and as of February 2010 was expected to be released shortly, along with an implementation document and a results framework that will include a plan for monitoring and evaluation. In the fiscal year 2011 Congressional Budget Justification for GHFSI, the administration has identified a group of 20 countries for GHFSI assistance, including 12 countries in sub- Saharan Africa, 4 in Asia, and 4 in the Western Hemisphere. However, the administration’s efforts are vulnerable to weaknesses in funding data, and the host country-led approach, although promising, poses some risks. Currently, no single information database compiles comprehensive data on the entire range of global food security programs and activities across the U.S. government. The lack of comprehensive data on current programs and funding levels may impair the success of the new strategy because it deprives decision makers of information on all available resources, actual costs, and a firm baseline against which to plan. Furthermore, the host country-led approach has three key vulnerabilities, as follows: First, the weak capacity of host governments raises questions regarding their ability to absorb significant increases in donor funding for agriculture and food security and to sustain donor-funded projects on their own over time. For example, multilateral development banks have reported relatively low sustainability ratings for agriculture-related projects in the past. In a 2007 review of World Bank assistance to the agricultural sector in Africa, the World Bank Independent Evaluation Group reported that only 40 percent of the bank’s agriculture-related projects in sub-Saharan Africa had been sustainable. Similarly, an annual report issued by the International Fund for Agricultural Development’s independent Office of Evaluation on the results and impact of the fund’s operations between 2002 and 2006 rated only 45 percent of its agricultural development projects satisfactory for sustainability. Second, the shortage of expertise in agriculture and food security at relevant U.S. agencies can constrain efforts to help strengthen host government capacity, as well as review host government efforts and guide in-country activities. For example, the Chicago Council on Global Affairs noted that whereas USAID previously had a significant in-house staff capacity in agriculture, it has lost that capacity over the years and is only now beginning to restore it. The loss has been attributed to the overall declining trend in U.S. assistance for agriculture since the 1990s. In 2008 three former USAID administrators reported that “the agency now has only six engineers and 16 agriculture experts.” According to USAID, a recent analysis of direct hire staff shows that the agency has since increased the number of its staff with technical expertise in agriculture and food security to 79. A USAID official told us that the agency’s current workforce plan calls for adding 95 to 114 new Foreign Service officers with technical expertise in agriculture by the end of fiscal year 2012. Third, policy differences between the United States and host governments with regard to agricultural development and food security may complicate efforts to align U.S. assistance with host government strategies. For example, Malawi’s strategy of providing subsidized agricultural inputs to farmers runs counter to the U.S. approach of encouraging the development of agricultural markets and linking farmers to those markets. Since 2005 and 2006, the government of Malawi has implemented a large- scale national program that distributes vouchers to about 50 percent of the country’s farmers so that they can purchase agricultural inputs—such as fertilizer, seeds, and pesticides—at highly discounted prices. USAID has supported operations that use targeted vouchers to accelerate short-term relief operations following conflicts or disasters. However, according to USAID, the provision of cheaper fertilizer and seeds does not address the fundamental problem—that poor farmers cannot afford fertilizer on their own and, furthermore, without improvements in irrigation, investments in fertilizer would not pay off in drought years in a country like Malawi, where agriculture is mainly rain-fed. In the face of growing malnutrition worldwide, the international community has established ambitious goals toward halving global hunger, including significant financial commitments to increase aid for agriculture and food security. Given the size of the problem and how difficult it has historically been to address it, this effort will require a long-term, sustained commitment on the part of the international donor community, including the United States. As part of this initiative, and consistent with a prior GAO recommendation, the United States has committed to harnessing the efforts of all relevant U.S. agencies in a coordinated and integrated governmentwide approach. The administration has made important progress toward realizing this commitment, including providing high-level support across multiple government agencies. However, the administration’s efforts to develop an integrated U.S. governmentwide strategy for global food security have two key vulnerabilities: (1) the lack of readily available comprehensive data across agencies and (2) the risks associated with the host country-led approach. Given the complexity and long-standing nature of these concerns, there should be no expectation of quick and easy solutions. Only long-term, sustained efforts by countries, institutions, and all relevant entities to mitigate these concerns will greatly enhance the prospects of fulfilling the international commitment to halve global hunger. In the report issued today, we recommended that the Secretary of State (1) work with the existing NSC Interagency Policy Committee to develop an operational definition of food security that is accepted by all U.S. agencies; establish a methodology for consistently reporting comprehensive data across agencies; and periodically inventory the food security-related programs and associated funding for each of these agencies; and (2) work in collaboration with relevant agency heads to delineate measures to mitigate the risks associated with the host country- led approach on the successful implementation of the forthcoming governmentwide global food security strategy. Four agencies—State, Treasury, USAID, and USDA—provided written comments on our report and generally concurred with our recommendations. With regard to our first recommendation, State and USAID agreed that developing an operational definition of food security that is accepted by all U.S. agencies would be useful. With regard to our second recommendation, the four agencies noted that the administration recognizes the risks associated with a host country-led approach and that they are taking actions to mitigate these risks. Madam Chairwoman, this concludes my statement. I would be pleased to respond to any questions that you or other Members of the Subcommittee may have. Should you have any questions about this testimony, please contact Thomas Melito at (202) 512-9601, or melitot@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Phillip J. Thomas (Assistant Director), Joy Labez, Sada Aksartova, Carol Bray, Ming Chen, Debbie Chung, Martin De Alteriis, Brian Egger, Etana Finkler, Amanda Hinkle, and Ulyana Panchishin. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Global hunger continues to worsen despite world leaders' 1996 pledge--reaffirmed in 2000 and 2009--to halve hunger by 2015. To reverse this trend, in 2009 major donor countries pledged about $22.7 billion in a 3-year commitment to agriculture and food security in developing countries, of which $3.5 billion is the U.S. share. This testimony addresses (1) the types and funding of food security programs and activities of relevant U.S. government agencies and (2) progress in developing an integrated U.S. governmentwide strategy to address global food insecurity and the strategy's potential vulnerabilities. This is based on a new GAO report being released at today's hearing (GAO-10-352). The U.S. government supports a wide variety of programs and activities for global food security, but lacks readily available comprehensive data on funding. In response to GAO's data collection instrument to 10 agencies, 7 agencies reported such funding for global food security in fiscal year 2008 based on the working definition GAO developed for this exercise with agency input. USAID and USDA reported the broadest array of programs and activities, while USAID, the Millennium Challenge Corporation, Treasury, USDA, and State reported providing the highest levels of funding for global food security. The 7 agencies together directed at least $5 billion in fiscal year 2008 to global food security, with food aid accounting for about half of that funding. However, the actual total is likely greater. GAO's estimate does not account for all U.S. government funds targeting global food insecurity because the agencies lack (1) a commonly accepted governmentwide operational definition of global food security programs and activities as well as reporting requirements to routinely capture data on all relevant funds, and (2) data management systems to track and report food security funding comprehensively and consistently. The administration is making progress toward finalizing a governmentwide global food security strategy--expected to be released shortly--but its efforts are vulnerable to data weaknesses and risks associated with the strategy's host country-led approach. The administration has established interagency coordination mechanisms at headquarters and is finalizing an implementation document and a results framework. However, the lack of comprehensive data on programs and funding levels may deprive decision makers of information on available resources and a firm baseline against which to plan. Furthermore, the host country-led approach, although promising, is vulnerable to (1) the weak capacity of host governments, which can limit their ability to sustain donor-funded efforts; (2) a shortage of expertise in agriculture and food security at U.S. agencies that could constrain efforts to help strengthen host government capacity; and (3) policy differences between host governments and donors, including the United States, may complicate efforts to align donor interventions with host government strategies.

The TANF block grant was created by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) and was designed to give states the flexibility to provide both traditional welfare cash assistance benefits as well as a variety of other benefits and services to meet the needs of low-income families and children. States have responsibility for designing, implementing, and administering their welfare programs to comply with federal guidelines, as defined by federal law and HHS that oversees state TANF programs at the federal level. Importantly, with the fixed federal funding stream, states assume greater fiscal risks in the event of a recession or increased program costs. However, in acknowledgment of these risks, PRWORA also created a TANF Contingency Fund that states could access in times of economic distress. Similarly, during the recent economic recession, Congress created a $5 billion Emergency Contingency Fund for state TANF programs through the American Recovery and Reinvestment Act of 2009, available in fiscal years 2009 and 2010. The story of TANF’s early years is well known. During a strong economy, increased federal support for work supports like child care, and the new TANF program’s emphasis on work, welfare rolls were cut by more than half. Many former welfare recipients increased their income through employment, and employment rates among single parents increased. At the same time that some families worked more and had higher incomes, others had income that left them still eligible for TANF cash assistance. However, many of these eligible families were not participating in the program. According to our estimates in a previous report, the vast majority—87 percent—of the caseload decline can be explained by the decline in eligible families participating in the program, in part because of changes to state welfare programs. These changes include mandatory work requirements, changes to application procedures, lower benefits, and policies such as lifetime limits on assistance, diversion policies, and sanctions for non-compliance, according to a review of the research. Among eligible families who did not participate, 11 percent did not work, did not receive means-tested disability benefits, and had very low incomes. While we have not updated this analysis, some research shows that this potentially vulnerable group may be growing. Despite the decrease in the cash assistance caseload overall, the number of cases in which aid was provided only for the children in the household increased slightly, amounting to about half the cash assistance caseload. For these households, the adult is not included in the benefit calculation, generally either because: (1) the parent is receiving cash support through the Supplemental Security Income program; (2) the parent is an immigrant who is ineligible; (3) the child is living with a nonparent caregiver; or (4) the parent has been sanctioned and removed from cash assistance for failing to comply with program requirements. Nationally, about one-third of these “child only” households are children living with non-parent caregivers. We also know that during and after this recent significant recession, while caseloads increased in most states, the overall national increase totaled about 13 percent from fiscal years 2008 to 2011. This has been the first test of TANF—with its capped block grant structure—during severe economic times. This relatively modest increase—and decreases in some states—has raised questions about the responsiveness of TANF to changing economic conditions. We recently completed work on what was happening to people who had exhausted their unemployment insurance While almost 40 percent of benefits after losing a job in the recession.near-poor households with children that had exhausted UI received aid through the Supplemental Nutrition Assistance Program (formerly known as food stamps), we estimated that less than 10 percent received TANF cash assistance. A key TANF goal is helping parents prepare for and find jobs. The primary means to measure state efforts in this area has been TANF’s work participation requirements. Generally, states are held accountable for ensuring that at least 50 percent of all families receiving TANF cash assistance and considered work-eligible participate in one or more of the federally defined allowable activities for the required number of hours each week. However, over the years, states have not typically engaged that many recipients in work activities on an annual basis—instead, states have engaged about one third of families in allowable work activities nationwide. Most states have relied on a combination of factors, including various policy and funding options in federal law and regulations, to meet the work participation requirements without reaching the specified 50 percent. Factors that influenced states’ work participation rates included not only the number of families receiving TANF cash assistance who participated in work activities, but also: decreases in the number of families receiving TANF cash assistance (not due to program eligibility changes) that provide a state credit toward meeting its rates , state spending on TANF-related services beyond what is required that also provides a state credit toward meeting its rates, state policies that allow working families to continue receiving TANF cash assistance, helping a state to increase its rate, and state policies that provide nonworking families cash assistance outside of the TANF program. For example, some states serve families with work barriers outside of state TANF because of concerns that they will not be able to meet work requirements. Many states have cited challenges in meeting TANF work participation rates, such as requirements to verify participants’ actual activity hours and certain limitations on the types and timing of activities that count toward meeting the requirements. Because of the various factors that affect the calculation of states’ work participation rates, the rate’s usefulness as an indicator of a state’s effort to help participants achieve self-sufficiency is limited. Further, the TANF work participation rates, as enacted, in combination with the flexibility provided, may not serve as an incentive for states to engage more families or to work with families with complex needs. While the focus is often on TANF’s role in cash assistance, it plays a significant role in states’ budgets for other programs and services for low- income families, as allowed under TANF. The substantial decline in traditional cash assistance caseloads combined with state spending flexibilities under the TANF block grant allowed states to broaden their use of TANF funds. As a result, TANF and state TANF-related dollars played an increasing role in state budgets outside of traditional cash assistance payments. In our 2006 report that reviewed state budgets in nine states, we found that in the decade after Congress created TANF, the states used their federal and state TANF-related funds to support a wide range of state priorities, such as child welfare services, mental health services, substance abuse services, prekindergarten, and refundable state earned income credits for the working poor, among others. While some of this spending, such as that for child care assistance, relates directly to helping cash assistance recipients leave and stay off the welfare rolls, other spending is directed to a broader population that did not necessarily ever receive welfare payments. This is in keeping with the broad purposes of TANF specified in the law: providing assistance to needy families so that children could be cared for in their own homes or in the homes of relatives; ending needy families’ dependence on government benefits by promoting job preparation, work, and marriage; preventing and reducing the incidence of out-of-wedlock pregnancies; encouraging the formation and maintenance of two-parent families. This trend away from cash assistance has continued. In fact, in fiscal year 2011, federal TANF and state expenditures for purposes other than cash assistance totaled 71 percent of all expenditures. This stands in sharp contrast with 27 percent spent for purposes other than cash assistance in fiscal year 1997, when states first implemented TANF. Beyond the cash assistance rolls, the total number of families assisted is not known, as we have noted in our previous work. TANF funds can play an important role in some states’ child welfare budgets. In our previous work, Texas state officials told us that 30 percent of the child welfare agency’s budget was funded with TANF dollars in state fiscal year 2010. Many states have used TANF to fund child welfare services because, although TANF funding is a capped block grant, it is a relatively flexible funding source. However, some states may not be able to continue relying on TANF to fund child welfare services because they need to use TANF funds to address other program goals, such as promoting work. For example, Tennessee officials told us that they previously used some of their TANF grant to fund enhanced payments for children’s relative caregivers and their Relative Caregiver Program, but that the state recently discontinued this practice due to budget constraints. While states have devoted significant amounts of the block grant as well as state funds to these and other activities, little is known about the use of these funds. Existing TANF oversight mechanisms focus more on the cash assistance and welfare-to-work components of the block grant. For example, when states use TANF funds for some purposes, they are not required to report on funding levels for specific services and how those services fit into a strategy or approach for meeting TANF goals. In effect, there is little information on the numbers of people served by TANF- funded programs other than cash assistance, and there is no real measure of workload or of how services supported by TANF and state TANF-related funds meet the goals of welfare reform. This information gap hinders decision makers in considering the success of TANF and what trade offs might be involved in any changes to TANF when it is authorized. The federal-state TANF partnership makes significant resources available to address poverty in the lives of families with children. With these resources, TANF has provided a basic safety net to many families, triggered a focus on work in the nation’s welfare offices while helping many parents step into jobs, and provided states flexibility to help families in ways they believe will help prevent dependence on public assistance and improve the lives of children. At the same time, it does raise questions about the strength and breadth of the TANF safety net. Are some eligible families falling through? The emphasis on work participation rates as a measure of program performance has helped change the culture of state welfare programs to focus on moving families into employment, but weaknesses in the measure undercut its effectiveness. Are the work participation rates providing the right incentive to states to engage parents, including those difficult to serve, and help them achieve self-sufficiency? The flexibility of the TANF block grant has allowed states to shift their spending away from cash assistance and toward other programs and services for low-income families, potentially expanding the ability of states to combat poverty in new ways. However, we do not have enough information about the use of these funds to determine whether this flexibility is resulting in the most efficient and effective strategies at this time of scarce government resources and great need among the nation’s low-income families. Chairman Baucus, Ranking Member Hatch, and Members of the Committee, this concludes my statement. I would be pleased to respond to any questions you may have. For questions about this statement, please contact me at (202) 512-7215 or brownke@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Alexander G. Galuten, Gale C. Harris, Sara S. Kelly, Kathryn A. Larin, and Theresa Lo. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This hearing is on combating poverty and understanding new challenges for families. The testimony focuses on the role of the Temporary Assistance for Needy Families (TANF) block grant in helping low-income families with children. As you know, the federal government significantly changed federal welfare policy in 1996 when it created TANF, a $16.5 billion annual block grant provided to states to operate their own welfare programs within federal guidelines. States are also required to maintain a specified level of their own spending to receive TANF funds. Over the past 15 years, the federal government and states have spent a total of $406 billion for TANF, about 60 percent of which were federal funds. This federal-state partnership has undergone multiple program and fiscal changes, including a dramatic drop in the number of families receiving monthly cash assistance benefits, as well as two economic recessions. According to the Bureau of the Census, poverty among children fell from about 21 percent in 1995 to about 16 percent in 2000, rising again to 22 percent in 2010. Examining TANF’s past performance can help shed light on the challenges facing low-income families and the role of the federal government in combating poverty. This testimony–based primarily on reports issued by GAO from 2010 to 2012 on TANF and related issues—will focus on TANF’s performance in three areas: (1) as a cash safety net for families in need, (2) as a welfare-to-work program that promotes employment, and (3) as a funding source for various services that address families’ needs. The federal-state TANF partnership makes significant resources available to address poverty in the lives of families with children. With these resources, TANF has provided a basic safety net to many families and helped many parents step into jobs. At the same time, there are questions about the strength and breadth of the TANF safety net. Many eligible families—some of whom have very low incomes—are not receiving TANF cash assistance. Regarding TANF as a welfare-to-work program, the emphasis on work participation rates as a measure of state program performance has helped change the culture of state welfare programs to focus on moving families into employment. However, features of the work participation rates as currently implemented undercut their effectiveness as a way to encourage states to engage parents, including those difficult to serve, and help them achieve self-sufficiency. Finally, states have used TANF funds to support a variety of programs other than cash assistance as allowed by law. Yet, we do not know enough about this spending or whether this flexibility is resulting in the most efficient and effective use of funds at this time.

The Spallation Neutron Source Project is, according to DOE and its scientific advisers, vitally important to the nation’s scientific community. DOE estimates that as many as 2,000 scientists from universities, industries, and federal laboratories will use this facility, which is scheduled to be completed in December 2005. The five DOE national laboratories collaborating on the project are the Lawrence Berkeley National Laboratory in California, Los Alamos National Laboratory in New Mexico, Brookhaven National Laboratory in New York, Argonne National Laboratory in Illinois, and Oak Ridge National Laboratory in Tennessee. Each of the five participating laboratories is responsible for designing, building, and assembling separate components of the project. Oak Ridge National Laboratory’s current operating contractor is Lockheed Martin Energy Research Corporation, which serves as the project’s overall manager. Several advisory committees provide scientific advice, and a DOE review process gives technical and managerial advice. According to current estimates, the facility will take 7-¼ years to complete and will cost $1.36 billion. DOE approved the conceptual design for the project in June 1997 and has spent about $39 million on the project through fiscal year 1998. The Congress approved the start of the construction phase in fiscal year 1999 and provided $130 million for this purpose. DOE expects actual construction to begin in mid-2000. We reviewed the project in the context of our past experiences in examining large DOE construction projects. As this Subcommittee is well aware, DOE has not always managed large projects successfully. Our 1996 report on DOE’s management of major system acquisitions (defined as projects costing about $100 million and more) found that many of DOE’s large projects have cost more and taken longer to complete than planned. In the past, many were terminated before they were completed, and others never performed as expected. One reason for the cost and schedule problems associated with these projects was the lack of sufficient DOE personnel with the appropriate skills to oversee contractors’ operations. Most recently, we examined DOE’s efforts to clean up large concentrations of radioactive waste at the Department’s Hanford Site in southeast Washington State. Although DOE is making changes to improve its management of this project, we found early indications that DOE may be having difficulty ensuring that the proper expertise is in place. In a 1997 review, DOE reported that the success of the project depends on a having a project director skilled in accelerator science and in the management of large construction projects. “It is critical that the permanent leadership for the be named as soon as possible,” the review said. “It will also be a mark of ability to execute this project that key scientific, technical, and management leadership, committed to making the succeed, can be successfully recruited to before the project is funded by Congress.” Despite this recognized need and the Congress’s approval of the project’s construction phase 5 months earlier (the Congress provided funding for design activities beginning in fiscal year 1996), Oak Ridge National Laboratory has just announced the hiring of an experienced project director. In the interim, the laboratory’s associate director has been serving as the project director. This announcement came shortly after DOE’s internal review committee and an independent review team strongly recommended that a project director with the right skills be recruited as quickly as possible. Other key positions remain unfilled. The project is still without a technical director, and DOE’s review committee recently concluded that there was still “an inadequate level of technical management at the laboratory.” This committee also noted that a full-time operations manager should be appointed and that a manager is needed to oversee the construction of the facilities that will house the equipment and instruments being built by the individual laboratories. In addition, the committee reported that the slow progress in the facilities portion of the project is due in large part to the relative inexperience of the project facilities staff. DOE also found that the designs of each of the collaborating laboratories’ component parts have not effectively been integrated into the total project, primarily because Oak Ridge National Laboratory’s project office lacks the appropriate technical expertise to integrate the designs and to plan for commissioning and operating the facility. Several other key project officials were hired later than originally planned. For example, a manager for environment, safety, and health was hired in December 1998, and the architect-engineering/construction management contractor was hired in November 1998. DOE had hoped to fill these important positions before the construction phase began in October 1998. Because of these delays in hiring staff, the project is underspending its appropriation. Obligations and costs are currently running at about 60 percent of the planned budget (through 4 months of the project’s 87-month schedule). A major reason for the slow pace of spending is that Los Alamos National Laboratory only recently (Nov. 1998) hired a permanent team leader and consequently is behind the other laboratories in completing several project tasks. In addition, the architect-engineering/construction management contract was finalized later than originally planned. DOE officials told us they are confident, however, that the current spending pace will not affect the project’s overall schedule and that the current spending patterns represent the prudent use of funds. The project’s cost and schedule estimates are not fully developed and thus do not yet represent a reliable estimate (baseline). According to a senior DOE official, the current project team does not have the expertise to develop a detailed cost estimate, preferring instead to accept laboratories’ cost estimates that lack supporting detail. This shortfall in expertise has delayed the development of an accurate estimate of the project’s total cost. DOE’s independent reviewer expressed a similar concern, noting that the cost estimate in the project is based on its design and that “higher quality estimates are needed for a credible baseline.” Of particular concern are the inadequate allowances for contingencies (unforeseen costs and delays) built into the project’s current cost and schedule estimates. The project’s cost estimate allows 20 percent for contingencies, well below the 25-30-percent allowance that DOE and contractor officials believe is necessary for a project of this scope and complexity. Concerned about the low contingency allowance, DOE’s independent review team reported that the project will not be completed at the current cost estimate. The project’s contingency allowance for delays is also too low, according to current project officials. The project allows about 6 months for delays, well below the 9 to 12 months desired by project managers. DOE and laboratory project managers told us they are confident that they can increase these contingency allowances without jeopardizing the project’s overall cost and schedule. The complex management approach that DOE has devised for the project creates a need for the strongest possible leadership. In particular, integrating the efforts of five national laboratories on a project of this scope requires an unprecedented level of collaboration. While staff from multiple laboratories collaborate on other scientific programs, DOE has never attempted to manage a multilaboratory effort as large and complex as this one. According to DOE, a multilaboratory structure was chosen to take advantage of the skills offered by the individual laboratories. Although Oak Ridge National Laboratory serves as the project’s overall manager, staff at each of the participating laboratories do not report to Lockheed Martin Energy Research Corporation, the current Oak Ridge contractor that is managing the project. Instead, the collaborating laboratory staff report to their respective laboratory contractors—the educational institutions or private enterprises that operate the laboratories. In addition, the five laboratories participating in the project are overseen by four separate DOE operations offices. Further complicating this reporting structure, four of the five laboratories receive most of their program funding from DOE’s Office of Science, under whose leadership the project is funded and managed. Los Alamos, however, is primarily funded by DOE’s Defense Programs, a different component within DOE’s complex organizational structure. Achieving a high level of collaboration among the diverse cultures, systems, and processes that characterize the participating laboratories, operations offices and headquarter program offices is widely recognized as the project’s biggest management challenge. To facilitate collaboration among the laboratories, DOE has developed memorandums of agreement between and among the laboratories and with the four DOE operations offices that oversee the laboratories. These agreements articulate each cooperating laboratory’s role and expectation for its component of the project. However, these agreements are not binding and represent the laboratory director’s promise to support the project and cooperate with Oak Ridge in ensuring that required tasks at each laboratory are completed on time and within cost. DOE told us that only two of the laboratories—Los Alamos National Laboratory and Argonne National Laboratory—have the project as a performance element in their contracts with DOE. A construction project of this scale and complexity needs a single, experienced individual in charge of all aspects of the project. This individual must have the responsibility and the full authority needed to direct all aspects of the project. Because of the multi-laboratory collaborative nature of the project, the project leader must be able to directly access the management of the collaborating laboratories at the highest level.” DOE’s management approach for this project raises several risks. The new project director will remain an employee of Argonne National Laboratory (operated by the University of Chicago), but will work directly with Lockheed Martin Energy Research Corporation. The project director will not have direct authority over other laboratories’ staff and will, in our opinion, be handicapped by having to work through many other officials to achieve results on a day-to-day basis. Senior DOE officials responded to our concerns by noting that the project director approves all work packages authorizing funding to the participating laboratories, and thereby exercises direct control over the project. DOE officials told us that the participating laboratory directors are highly committed to the project and that senior DOE managers will not hesitate to intervene to resolve disputes. Finally, DOE officials observed that the DOE review committee and the independent reviewer have praised the level of collaboration already achieved on the project. We agree that the laboratories appear to be collaborating on the project at this very early stage, but we remain concerned about DOE’s reliance on memorandums of agreements in the absence of direct control. In commenting on the collaboration achieved to date, the independent reviewer also noted that “the laboratories have traditionally operated in an independent and decentralized manner which contributes to the Team’s concern in this area.” The independent reviewers also said that there is not a clear chain of command in the project’s current organizational structure. Contributing to our concerns is well-documented evidence of problems in the laboratories’ chain of command. We, along with many other reviewers, have reported that the Department lacks an effective organizational structure for managing the laboratories as a system. We noted that the absence of a senior official in the Department with program and administrative authority over the operations of all the laboratories prevents effective management of the laboratories on a continuing basis. DOE officials told us that the Under Secretary is paying close attention to the project and will intervene as necessary to resolve disputes. DOE officials have also told us that the many advisory committees created to provide technical and managerial assistance serve to enhance the laboratories’ collaboration. DOE and laboratory officials have cited several instances in which the laboratories have worked together in a highly effective manner, citing, for example, the recent completion of the Advanced Photon Source at Argonne National Laboratory. These achievements, however, are not representative of the current challenges facing DOE and its laboratories and do not resolve management problems inherent in the project’s current organizational structure and reporting relationships. Mr. Chairman, this concludes our statement. We would be happy to respond to any questions from you or Members of the Subcommittee. The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Pursuant to a congressional request, GAO discussed the Department of Energy's (DOE) management of the Spallation Neutron Source Project, focusing on the: (1) project's cost and schedule; and (2) effectiveness of the collaborating laboratories' coordination. GAO noted that: (1) the project is not currently in trouble, but warning signs in three key areas raise concerns about whether it will be completed on time and within budget; (2) DOE has not assembled a complete team with the technical skills and experience needed to properly manage the project; (3) a permanent project director was just hired last week, 5 months after Congress approved the start of construction and over a year after the project's design was approved; (4) other important positions remain unfilled, including those of a technical director and an operations manager; (5) cost and schedule estimates for the project have not been fully developed; (6) furthermore, the project's contingency allowances for unforeseen costs and delays are too low for a project of this size and scope, according to project managers and DOE; (7) DOE's approach to managing the project requires an unprecedented level of collaboration among five different laboratories, managed through DOE's complex organizational structure; and (8) coupled with DOE's history of not successfully completing large projects on time and within budget, these warning signs make the Spallation Neutron Source project a significant management challenge for DOE and suggest a need for continued close oversight.

A major goal of Customs is to prevent the smuggling of drugs into the country by attempting to create an effective drug interdiction, intelligence, and investigation capability that disrupts and dismantles smuggling organizations. Although Customs inspectors have the option to conduct examinations of all persons, cargo, and conveyances entering the country, the inspectors may selectively identify for a thorough inspection those that they consider high risk for drug smuggling. This identification is generally done through the use of databases available to Customs, such as TECS. TECS is designed to be a comprehensive enforcement and communications system that enables Customs and other agencies to create or access lookout data when (1) processing persons and vehicles entering the United States; (2) communicating with other computer systems, such as the Federal Bureau of Investigation’s National Crime Information Center; and (3) storing case data and other enforcement reports. In addition to Customs, TECS has users from over 20 different federal agencies, including the Immigration and Naturalization Service; the Bureau of Alcohol, Tobacco and Firearms; the Internal Revenue Service; and the Drug Enforcement Administration. The TECS network consists of thousands of computer terminals that are located at land border crossings along the Canadian and Mexican borders; sea and air ports of entry; and the field offices of Customs’ Office of Investigations and the Bureau of Alcohol, Tobacco and Firearms. These terminals provide access to records and reports in the TECS database containing information from Customs and other Department of the Treasury and Department of Justice enforcement and investigative files. According to the TECS user manual, all TECS users (e.g., Customs inspectors and special agents) can create and query subject records, which consist of data on persons, vehicles, aircraft, vessels, businesses or organizations, firearms, and objects. According to TECS Data Standards, records should be created when the subject is deemed to be of law enforcement interest. This interest may be based on previous violations, such as drug smuggling or suspicion of violations, or subjects that are currently or potentially of investigative interest. One of the reasons for creating a TECS lookout record is to place a person or vehicle in the system for possible matching at Customs’ screening locations, such as land border ports of entry. For example, if a vehicle’s license plate that was placed on lookout for possible drug smuggling were later matched during a primary inspectionat a land border port of entry, that vehicle could be referred for additional scrutiny at a secondary inspection. Inappropriate deletions of TECS lookout records could negatively affect Customs’ ability to detect drug smuggling. Although inspectors have the option to conduct a thorough examination of all persons, cargo, and conveyances entering the country, they selectively identify for a thorough inspection only those that they consider high risk for drug smuggling. This identification is generally done through the use of databases available to Customs, such as TECS. Inspectors also rely on their training and experience to detect behavior that alerts them to potential drug violators. If lookout records have been inappropriately deleted, inspectors will have less information or less accurate information on which to make their decisions. The TECS administrative control structure consists of a series of System Control Officers (SCO) at various locations, including Customs headquarters, CMCs, and ports around the country. These SCOs are responsible for authorizing and controlling TECS usage by all of the users within the network. A national SCO has designated other SCOs at Customs headquarters for each major organization (e.g., Office of Investigations, Field Operations, and Internal Affairs) who, in turn, have designated regional SCOs who have named SCOs at each CMC and Office of Investigations field office. In some instances, SCOs have been appointed at the port of entry and Office of Investigations suboffice level. Consequently, the SCO chain is a hierarchical structure with each user assigned to a local SCO who, in turn, is assigned to a regional SCO, and so on up to the national level. One of an SCO’s primary duties is to establish User Profile Records on each user. User Profile Records identify the user by name, social security number, position, duty station, and telephone number. They also identify the social security number of the user’s supervisor, the SCO’s social security number, and the TECS applications that the user is authorized to access. SCOs at the various levels have certain system authorities they can pass on to other users. For example, the record update level is a required field in the User Profile Record that indicates the user’s authority to modify or delete records. SCOs can only assign to a user the level that they have, or a lower level. According to the TECS user manual, record update levels include the following: 1. Users can only modify or delete records they own (i.e., the user created the records or received them as a transfer from the previous owner). 2. Users can modify or delete any record within their specific Customs sublocation, such as a port of entry, thereby ignoring the ownership chain;the user does not have to be the owner of the record. 3. Users can modify or delete any record owned by anyone in their ownership chain. 4. Users can modify or delete any record in the Customs Service, thereby ignoring the ownership chain. 5. Users have a combination of levels two and three. 9. Users can modify or delete any user’s record in the database. According to Customs TECS officials, when a TECS user creates a record and enters it into the system, the user’s supervisor is automatically notified of the entry. All records must be viewed by the supervisor. The supervisor must approve the record, and the record must be linked to supporting documentation, such as a Memorandum of Information Received. According to the TECS user manual, TECS users can modify and delete records that they own, and on the basis of the record update level in their User Profile Record, may modify and delete the records of other users as follows: If the users are supervisors or SCOs with the proper record update level (three or five), they may modify and delete the records owned by users in their supervisory or SCO chain. If the users’ record update level (two, four, or five) allows, they may modify and delete the records created or owned by other users in a specific Customs sublocation, such as a port of entry. No other controls or restrictions are written in the TECS user manual or any other document that we reviewed. The Federal Managers’ Financial Integrity Act of 1982 required, among other items, that we establish internal control standards that agencies are required to follow (see 31 U.S.C. 3512). The resulting Comptroller General’s standards for internal controls in the federal government contain the criteria we used to assess Customs’ controls over the deletion of lookout records from TECS. During our review, we identified three areas of control weakness: separation of duties, documentation of transactions, and supervision. The Comptroller General’s internal control standards require that key duties and responsibilities in authorizing, processing, recording, and reviewing transactions should be separated among individuals. To reduce the risk of error, waste, or wrongful acts or to reduce the risk of their going undetected, no one individual should control all key aspects of a transaction or event. Rather, duties and responsibilities should be assigned systematically to a number of different individuals to ensure that effective checks and balances exist. Key duties include authorizing, approving, and recording transactions and reviewing or auditing transactions. Customs’ current policy authorizes a wide variety of people within and outside of an individual’s supervisory and SCO chain to individually delete the records that another individual owns without any checks and balances (e.g., concurrence by another person). This situation increases risk because, as one SCO that we interviewed told us, the more individuals—supervisors, SCOs, or others—with the required record update levels there are, the more vulnerable TECS is to having records inappropriately altered or deleted. According to the TECS user manual, supervisors, SCOs, and other users with the proper record update level may delete TECS records that they do not own. Moreover, we noticed a range in the number of individuals who were authorized to individually delete others’ records at the three CMCs and three ports we visited. For example, the Southern California CMC had 1 official—the SCO—with the authority to delete others’ records, while the Arizona CMC had 41 individuals—supervisors, SCOs, and others—with that authority. In addition, 1 of the ports we visited (Nogales) had 22 individuals with the authority to delete any record within their port without the record owner’s or anyone else’s permission. In these instances, many individuals, by virtue of their status as a supervisor or SCO or because they possessed the required record update level, were able to delete records with no checks and balances in evidence. The Comptroller General’s standards require that internal control systems and all transactions and other significant events are to be clearly documented, and that the documentation is to be readily available for examination. Documentation of transactions or other significant events should be complete and accurate and should facilitate tracing the transaction or event and related information from before it occurs, while it is in process, to after it is completed. Neither Customs policies nor the TECS user manual contained standards or guidance to require that Customs officials document reasons for the deletion of TECS lookout records. Although TECS can produce detailed information on what happened to records in the system and when it happened, there is no requirement that the person deleting the record is to describe the circumstances that called for the deletion. Thus, examiners cannot determine from the documentation whether the deletion was appropriate. The Comptroller General’s standards require that qualified and continuous supervision is to be provided to ensure that internal control objectives are achieved. This standard requires supervisors to continuously review and approve the assigned work of their staffs, including approving work at critical points to ensure that work flows as intended. A supervisor’s assignment, review, and approval of a staff’s work should result in the proper processing of transactions and events, including (1) following approved procedures and requirements; (2) detecting and eliminating errors, misunderstandings, and improper practices; and (3) discouraging wrongful acts from occurring or recurring. Customs had no requirement for supervisory review and approval of record deletions, although supervisory review and approval were required for creating TECS records. TECS officials told us that users could delete records that they own without supervisory approval. In addition, anyone with a higher record update level than the record owner, inside or outside of the owner’s supervisory and SCO chain, could also delete any owner’s record without obtaining approval. TECS lookout records can provide Customs inspectors at screening areas on the Southwest border with assistance in identifying persons and vehicles suspected of involvement in drug smuggling. Internal control weaknesses over deletions of the records may compromise the value of these tools in Customs’ anti-drug smuggling mission. Most of the CMCs and ports we reviewed had many individuals who were able to delete TECS records without any checks and balances, regardless of whether they owned the records or whether they were in an authorized supervisory or SCO chain of authority. In addition, Customs’ current policy authorizes a wide variety of people within and outside of an individual’s chain of authority the ability to delete records that other individuals created. The more people inside or outside of the supervisory or SCO chain of authority who can delete records without proper checks and balances, the more vulnerable the records are to inappropriate deletions. Although our review was limited to Customs headquarters, three CMCs, and three ports of entry, because of the lack of systemwide (1) internal control standards concerning deletion authority and (2) specific guidance concerning the deletion of TECS records that comply with the Comptroller General’s standards for internal controls, it is possible that TECS lookout records are not adequately safeguarded in other CMCs and other ports of entry as well. To better ensure that TECS lookout records are adequately safeguarded from inappropriate deletion, we recommend that the Commissioner of Customs develop and implement guidance and procedures for authorizing, recording, reviewing, and approving deletions of TECS records that conform to the Comptroller General’s standards. These procedures should include requiring supervisory review and approval of record deletions and documenting the reason for record deletions. The Treasury Under Secretary for Enforcement provided written comments on a draft of this report, and the comments are reprinted in appendix I. Overall, Treasury and Customs management generally agreed with our conclusions, and the Under Secretary said that Treasury officials also provided technical comments, which have been incorporated in the report as appropriate. Customs has begun action on our recommendation. Customs recognized that there is a systemic weakness in not requiring supervisory approval for the deletion of TECS records and not requiring an explicit reason for the deletion of these records. Customs agreed to implement the necessary checks and balances to ensure the integrity of lookout data in TECS. We are providing copies of this report to the Chairmen and Ranking Minority Members of House and Senate committees with jurisdiction over the activities of the Customs Service, the Secretary of the Treasury, the Commissioner of Customs, and other interested parties. Copies also will be made available to others upon request. The major contributors to this report are listed in appendix II. If you or your staff have any questions about the information in this report, please contact me on (202) 512-8777 or Darryl Dutton, Assistant Director, on (213) 830-1000. Brian Lipman, Site Senior The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO reviewed the internal control techniques the Customs Service has in place to safeguard certain law enforcement records in the Treasury Enforcement Communications System (TECS) from being inappropriately deleted. GAO noted that: (1) Customs did not have adequate internal controls over the deletion of TECS lookout records; (2) standards issued by the Comptroller General require that: (a) key duties and responsibilities in authorizing, processing, recording, and reviewing transactions should be separated among individuals; (b) internal control systems and all transactions and other significant events should be clearly documented; and (c) supervisors should continuously review and approve the assigned work of their staffs; (3) however, guidance on TECS does not require these safeguards and Customs officials at the three ports GAO visited had not implemented these controls; (4) as a result, Customs employees could inappropriately remove lookout records from TECS; and (5) although GAO's review was limited to Customs headquarters, three Customs Management Centers, and three ports of entry, because of the lack of adequate systemwide internal control standards over deletion authority, it is possible that TECS lookout records may not be adequately safeguarded in other ports of entry as well.

Geriatric assessment, defined as the skillful gathering of information about an elderly person’s health, needs, and resources, is a potentially useful component of any program for frail elderly clients needing home and community-based long-term care. Such assessment is especially relevant to multiservice programs that pay for a wide variety of services, such as the Medicaid waiver programs found in 49 states. These programs are authorized by the Social Security Act, which allows for the waiver of certain Medicaid statutory requirements to enable states to cover home and community-based services as an alternative to client institutionalization. Such waivers, however, need not be statewide and can specifically target selected groups of individuals (for example, the elderly). The home and community-based services must be furnished in accordance with a plan of care aproved by the State Medicaid Agency. The instruments used to determine the level of care, the qualifications of those using these instruments, and the processes involved in assessment are systematically reviewed and must be approved by the administrative staff of the Medicaid program. These controls on the tools, personnel, and processes involved in establishing program eligibility are likely to benefit the care planning process. However, relatively little is known about the assessments used by waiver programs to develop care plans for the elderly, how they are used, what they cover, how they are administered, and the qualifications of those who administer them. The elderly clients who apply for home and community-based care usually undergo cycles of assessment. Depending upon each client’s assessment, the program determines the services that should be delivered to the client over a period of time, utilizing a clinical decision-making process that results in a plan of care. Care planning processes vary among and within the states, and there is no single agreed-upon way to translate the results of assessment into a care plan. However, without good care planning, even the best assessment may not be helpful in achieving the most appropriate services for clients. Starting from this plan, program personnel (or personnel contracted by the program) directly authorize appropriate services and, when services are not available through the waiver program, may provide information to the client on how those services might be obtained. As the client’s needs for services change or a specified period of time passes, program personnel reassess the needs and adjust the care plan accordingly. Each state Medicaid waiver program for the elderly has the freedom to develop and adopt its own assessment instrument with no specific federal guidelines for content or process of administration. Most of the information gathered by these instruments falls under one of six broad domains, which are recommended by experts in geriatric assessment and found in most of the published instruments developed to assess the frail elderly. They are: (1) physical health, (2) mental health, (3) functioning (problems with daily activities), (4) social resources, (5) economic resources, and (6) physical environment. To the extent that these domains are included, the instrument can be thought of as comprehensive. The completion of the assessment instrument is often based on one or more interviews between the client and the assessor. Information from other sources, such as medical records or interviews with family members, may also be included. Regardless of its formal elements, the entire assessment process must be skillfully coordinated by the assessor or assessors involved. This is necessary to maximize the useful information obtained within the limits set by the capacities of the elderly clients being served and their understandable preference to “tell their stories” as they choose. We conducted a literature review on assessment instruments; interviewed experts in geriatric assessment and state and local officials; and visited several state Medicaid programs (California, Oregon, and Florida). From the exhaustive literature review and interviews with the nationally recognized experts identified through the literature, we learned about good practices in geriatric assessment. (See appendix I for a list of experts.) From officials and visits to state programs, we learned about the goals, procedures, and difficulties of assessment in the field and gathered information to help inform our data collection. We then conducted a survey of all 50 states and the District of Columbia about their assessment instruments for the Medicaid waiver programs that provide the elderly with multiple services (in some places referred to as elderly and disabled waiver programs). We asked the head of each waiver program (or the most appropriate staff) to complete a questionnaire and send us a copy of their assessment instruments used to develop the care plans of elderly clients. The questionnaire requested two kinds of information: (1) general information about the program and (2) detailed information about the assessment instrument or instruments used to develop the clients’ care plans, the assessment and care planning processes, and training and educational requirements of the assessors. After an extensive developmental process, we pretested the questionnaire in two states and incorporated necessary changes suggested by state officials. We then mailed the questionnaire to all states and gathered information between July 1994 and January 1995. The District of Columbia and Pennsylvania indicated that they did not have Medicaid waiver programs for the elderly and, therefore, were excluded from our sample. The 49 states with Medicaid waiver programs all responded to our questionnaire. We conducted our work in accordance with generally accepted government auditing standards. All 49 states reported to us that they use an assessment instrument to determine the care plan for each client, including the identification of needed services available both through the waiver program and outside the program. In addition, 43 states use the assessment to determine an elderly person’s functional eligibility for the waiver program (level of care), and 31 states use part of the instrument as a preadmission screen for possible nursing home care. The programs rely upon several types of information to develop care plans, including client’s preference, clinical impression, assessment scores, caregiver’s preference, budgetary caps, and medical records. Most programs use the assessor’s clinical impression, based on the assessment interview, and any scores or ratings generated by the assessment process most or all of the time. (See table 1.) Forty-eight of the programs told us that they “almost always” or “most of the time” provide clients with information about providers from whom they can get services not offered by the waiver program; 45 states provide them with referrals to such services; 35 provide them with assistance in obtaining these services; and 34 of the programs follow up clients to verify that the nonwaiver services have been obtained. It should be noted that some of these nonwaiver services may also be Medicaid-funded, such as home health care provided by Medicaid. We found that although all instruments gather some information on the broad domains of physical health, mental health, and functioning, not all of them cover the other three domains of a comprehensive assessment of an elderly person (84 percent cover social resources, 69 percent cover economic resources, and 80 percent cover physical environment). Within each of the six domains, certain specific topics are covered by a number of instruments. We found that all state instruments consistently gather information on assistance with activities of daily living (for example, bathing, toileting, and dressing). Table 2 shows the relative frequency of occurrence of any coverage whatsoever for each domain and for each topic found in 10 percent or more of the instruments. This list of topics does not represent an accepted standard. Different topics within a domain may yield similar or equivalent information. There may be other topics, not listed, that can also contribute to comprehensive assessment, and for some clients, skillful probing by assessors may be needed to obtain important contextual information not listed on any assessment form. It should also be acknowledged that, in particular instances, selected topics missing from instruments do not imply that states are not informed about these topics. Such information may be available from other sources. Also, the nature of the program or characteristics of the population may make certain information less relevant. For example, the financial eligibility rules of some states may obviate the need to ask about all the topics in the economic resources domain. Such repetition of topics would make the assessment unreasonably burdensome for the clients as well as for those programs with relatively limited resources (staff, time, or money). Less comprehensive instruments should be evaluated in the context of their particular programs to determine if sufficient information is collected about the client’s physical and mental health, functional status, social and economic supports, and home environment to develop an appropriate care plan. We found that although most assessments are conducted as face-to-face interviews, only 35 percent of the instruments specify the wording of any of the interview questions that assessors ask the clients. Further, when the wording is not specified, it is often unclear in what order different elements of information are to be gathered. Instruments with specified wording, however, are usually designed to gather information in a particular order. This lack of uniformity in instrument administration may lead to unnecessary variation in how different clients perceive, and therefore respond to, requests for “the same information.” For example, some replies to questions about depression may differ depending on whether they are asked before or after questions about physical health. Also, questions about activities of daily living, such as bathing, may evoke different replies depending on whether the client is asked if he or she “can bathe” or “does bathe.” Although there may be no universally agreed-upon “correct” wording for such items, once such a wording is decided upon, there may be benefits to employing it consistently within a given program. We found that 53 percent of the programs using a single assessor mention a years-of-experience requirement, and 57 percent of the programs using a team of two assessors mention this requirement for their lead assessor (for the second assessor, it is 50 percent). Moreover, most states require assessors to possess specific professional credentials. Thus, programs attempt in various ways, such as by the adoption of hiring (or contracting) and training standards, to ensure that assessors perform their job competently. However, no particular background or training requirements can guarantee optimal assessment for all clients. We found that only 31 percent of the programs require training the assessor in how to use the instrument, although such training may be obtained without a requirement. Assessors who are not similarly trained in the use of the instrument, regardless of their credentials or other training, may not respond uniformly to common occurrences, such as a client’s fatigue or a request to clarify a question. Assessors may administer the same instrument differently, even with standardized order and wording of the questions, based on differences in clinical training or experience in other situations. In light of the observed variability in waiver program assessments—with respect to instrument content, instrument standardization, and assessor requirements—the experts we consulted and the literature in gerontology make the following suggestions for improvement: First, a number of topics, such as those listed in table 2, have proved useful in assessing the elderly. Programs that do not cover a wide variety of these can increase the comprehensiveness of their assessments by including more of these topics. Second, standardizing the wording and order of questions generally increases the comparability of the clients’ replies. Finally, another important element in achieving uniformity of instrument administration is assessor training in use of the instrument. We have drawn three conclusions about the assessment instruments and their administration. First, we found that although all states use assessment instruments to develop a care plan, there is variation in their level of comprehensiveness. Second, we found that although most assessments are conducted as face-to-face interviews, many state instruments do not have standardized wording. Third, we found that although training in the administration of the instrument may be important in achieving uniformity of administration, many states do not require such training. The Health Care Financing Administrator provided written comments on a draft of this report. (See appendix II.) The agency did not disagree with our findings, but listed some circumstances that help clarify variations across states. Specifically, they noted that waiver programs are frequently administered by different state agencies, which not only bring different perspectives to the assessments, but also use them for a variety of different purposes and may use more than one instrument. Through our state survey, we also found that some states use multiple assessment instruments, and some use them for multiple purposes. In oral comments on our draft report, responsible agency officials made some technical comments. We have incorporated these into the text where appropriate. As discussed with your office, we will be sending copies of this report to the Subcommittee Chairman, to other interested congressional committees and agencies, and to the Department of Health and Human Services and the Health Care Financing Administration. We will also send copies to others who request them. If you or your staff have any questions about this report, please call me or Sushil K. Sharma, Assistant Director, at (202) 512-3092. The major contributors to this report are listed in appendix III. Kathleen C. Buckwalter, Ph.D., University of Iowa Robert Butler, M.D., Mount Sinai Medical Center, N.Y. Donald M. Keller, Project Manager Venkareddy Chennareddy, Referencer We wish to acknowledge the assistance of R.E. Canjar in collecting and organizing the data and Richard C. Weston in ensuring data quality. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO reviewed how publicly funded programs assess the need for home and community-based long-term care services for the poor disabled elderly, focusing on the: (1) comprehensiveness of the assessment instruments; (2) uniformity of their administration; and (3) uniformity of training for staff who conduct the assessments. GAO found that: (1) all 49 states reviewed use an assessment instrument to determine the long-term care needs of the poor disabled elderly and some also use them for other eligibility determinations; (2) 48 of the programs provide information to their clients about services not covered and most give referrals and assistance to obtain those services; (3) all of the assessment instruments covered physical and mental health and functional abilities of the disabled elderly, but inclusion of their social resources, economic resources, and physical environment ranged from 69 percent to 84 percent; (4) dependence on assistance with daily living activities was the only specific topic included in all instruments; (5) most assessments use face-to-face interviews, but only a minority of them specify the wording of questions; (6) most programs have experience and professional credential requirements for their assessors, but most programs do not require standardized training; and (7) experts believe that assessment instruments could be improved by including more topics, standardizing the wording and order of questions, and training assessors in use of the instruments.

Immunizations are widely considered one of the leading public health achievements of the 20th century. Mandatory immunization programs have eradicated polio and smallpox in the United States and reduced the number of deaths from several childhood diseases, such as measles, to near zero. A consistent supply of many different vaccines is needed to support this effort. CDC currently recommends routine immunizations against 11 childhood diseases: diphtheria, tetanus, pertussis (whooping cough), Haemophilus influenzae type b (most commonly meningitis), hepatitis B, measles, mumps, rubella (German measles), invasive pneumococcal disease, polio, and varicella (chicken pox). By combining antigens (the component of a vaccine that triggers an immune response), a single injection of a combination vaccine can protect against multiple diseases. The federal government, primarily through agencies of the Department of Health and Human Services (HHS), has a role both as a purchaser of vaccines and as a regulator of the industry. The federal government is the largest purchaser of vaccines in the country. CDC negotiates large purchase contracts with manufacturers and makes the vaccines available to public immunization programs under the Vaccines for Children (VFC) program. Under VFC, vaccines are provided for certain children, including those who are eligible for Medicaid or uninsured. Participating public and private health care providers obtain vaccines through VFC at no charge. A second program, established under section 317, of the Public Health Service Act, provides project grants for preventive health services, including immunizations. Currently, CDC supports 64 state, local, and territorial immunization programs (for simplicity, we refer to them as state immunization programs). In total, about 50 percent of all the childhood vaccines administered in the United States each year are obtained by public immunization programs through CDC contracts. The federal government is also responsible for ensuring the safety of the nation’s vaccine supply. FDA regulates the production of vaccines. It licenses all vaccines sold in the United States, requiring clinical trials to demonstrate that vaccines are safe and effective, and reviews the manufacturing process to ensure that vaccines are made consistently in compliance with current good manufacturing practices. Once vaccines are licensed, FDA also conducts periodic inspections of production facilities to ensure that manufacturers maintain compliance with FDA manufacturing requirements. States also have an important role in immunization efforts. Policies for immunization requirements, including minimum school and day care entry requirements are made almost exclusively at the state level, although cities occasionally impose additional requirements. Each state also established an immunization infrastructure to monitor infectious disease outbreaks, administer federal immunization grants, manage centralized supplies of vaccine, and otherwise promote immunization policies. Recent vaccine shortages have necessitated temporary modifications to the recommended immunization schedule and have caused states to scale back immunization requirements. In our survey of 64 state immunization programs, administered through the Association for State and Territorial Health Officials (ASTHO), all 52 responding programs indicated that they had experienced shortages of two or more vaccines and had taken some form of action to deal with the shortages. Vaccine shortages experienced at the state level have, in turn, prompted cutbacks in immunization requirements for admission to day care or school. Thirty-five states reported putting into effect new, less stringent immunization requirements that allow children who have received fewer than the recommended number of vaccinations to attend school. In general, these states have reduced the immunization requirements for day care and/or school entry or have temporarily suspended enforcement of those requirements until vaccine supplies are replenished. For example, the Minnesota Department of Health suspended the school and postsecondary immunization laws for Td vaccine for the second year in a row, with the suspension extending through the 2002-2003 school year. Other states, including South Carolina and Washington, reported allowing children to attend day care or school even if they were not in compliance with immunization requirements, under the condition that they be recalled for vaccinations when supplies became available. While it is too early to measure the effect of deferred vaccinations on immunization rates, a number of states reported that vaccine shortages and missed make-up vaccinations may take a toll on coverage and, therefore, increase the potential for infectious disease outbreaks. The full impact of vaccine shortages is difficult to measure for several reasons. For example, none of the national immunization coverage surveys measures vaccination coverage of children under the age of 18 months—the age cohort receiving the majority of vaccinations. While immunization experts generally agree that the residual effects of historically high immunization rates afford temporary protection for underimmunized children, missed immunizations could make susceptible children vulnerable to disease outbreaks. For example, a CDC analysis of a 1998 outbreak of measles in an Anchorage, Alaska, school showed that only 51 percent of the 2,186 children exposed had received the requisite two doses of measles vaccine. No single reason explains the rash of recent vaccine shortages; rather, multiple factors coincided that affected both the supply of and demand for vaccines. We identified four key factors, as follows. Production Problems - Manufacturing production problems contributed to the shortage of certain vaccines. In some cases, production slowdowns or interruptions occurred when planned maintenance activities took longer than expected; in other cases, production was affected as manufacturers addressed problems identified in FDA inspections. Changes over the last several years in FDA inspection practices may have resulted in the identification of more or different instances of manufacturers’ noncompliance with FDA manufacturing requirements. For example, prior to these changes, biologics inspections tended to focus primarily on scientific or technical issues and less on compliance with good manufacturing practices and documentation issues. FDA did take some steps to inform manufacturers about its inspection program changes; however, some manufacturers reported problems related to how well the changes were communicated. FDA issued a compliance program guidance manual detailing the new protocol for conducting inspections intended for FDA staff. However, the information in it could have provided manufacturers a better understanding of the scope of the inspections, but the manual was not made widely available—only upon request. Removal of Thimerosal - Calls for the removal of the preservative thimerosal from childhood vaccines illustrate the effect that policy changes can have on the supply of vaccine. As a precautionary measure, in July 1999, the American Academy of Pediatrics (AAP) and the U.S. Public Health Service (PHS) issued a joint statement advising that thimerosal in vaccines be eliminated or reduced as soon as possible. While thimerosal was present in several vaccines, removing it from some vaccines was more complex than for others. For example, one manufacturer of the diphtheria- tetanus-acellular pertussis vaccine (DTaP) had to switch its packaging from multidose to single-dose vials due to the removal of the preservative. This process reduced the manufacturer’s output of vaccine by 25 percent, according to the manufacturer. Manufacturer’s Decision to Discontinue Production - Another major factor in the shortage of DTaP, and also Td, was the decision of one manufacturer to discontinue production of all products containing tetanus toxoid. With little advance warning, the company announced in January 2001 that it had ceased production of these vaccines. According to the manufacturer, prior to its decision, it produced approximately one-quarter of all Td and 25 to 30 percent of all DTaP distributed in the United States, so the company’s departure from these markets was significant. In the previous year, another manufacturer that supplied a relatively small portion of DTaP also had stopped producing this vaccine. Together these decisions decreased the number of major manufacturers of DTaP from four to two and of Td from two to one. Unanticipated Demand - The addition of new vaccines to the recommended immunization schedule can also result in shortages if the demand for vaccine outstrips the predicted need and production levels. This was the case with a newly licensed vaccine, pneumococcal conjugate vaccine (PCV), which protects against invasive pneumococcal diseases in young children. PCV was licensed by FDA in February 2000 and formally added to the recommended schedule in January 2001. Company officials said an extensive education campaign prior to its availability resulted in record-breaking initial demand for the vaccine. CDC reported shortages of PCV existed through most of 2001, and the manufacturer was only able to provide about half the needed doses during the first 5 months of 2002. Ongoing manufacturing problems limit production, exacerbating the shortage. While the recent shortages have been largely resolved, the vaccine supply remains vulnerable to any number of disruptions that could occur in the future—including those that contributed to recent shortages and other potential problems, such as a catastrophic plant fire. One key reason is that the nature of vaccine manufacturing prevents the quick production of more vaccine when disruptions occur. Manufacturing a vaccine is a complex, highly controlled process, involving living biological organisms, that can take several months to over a year. Another underlying problem is the limited number of manufacturers—five of the eight recommended childhood vaccines have only one major manufacturer each. Consequently, if there are interruptions in supply or if a manufacturer ceases production, there may be few or no alternative sources of vaccine. One situation that may help add to the supply of existing vaccines is the development of new vaccines. A recent example is a new formulation of DTaP that recently received FDA approval and has helped ease the shortage of DTaP. We identified 11 vaccines in development that could help meet the current recommended immunization schedule. These vaccines, some of which are already licensed for use in other countries, are in various stages of development, but all must undergo a rather lengthy process of clinical testing and FDA review. While FDA has mechanisms available to shorten the review process, they are not used for most vaccines under development. FDA policies generally restrict the use of its expedited review processes to vaccines that offer protection against diseases for which there are no existing vaccines. Because childhood vaccines under development often involve new forms or combinations of existing vaccines, they typically do not qualify for expedited FDA review. Federal efforts to strengthen the nation’s vaccine supply have taken on greater urgency with the recent incidents of shortages. As part of its mandate to study and recommend ways to encourage the availability of safe and effective vaccines, the National Vaccine Advisory Committee formed a work group to explore the issues surrounding vaccine shortages and identify strategies for further consideration by HHS. In its preliminary report, the work group identified several strategies that hold promise, such as streamlining the regulatory process, providing financial incentives for vaccine development, and strengthening manufacturers’ liability protection, but it concluded that these strategies needed further study. The work group did express support for expanding CDC vaccine stockpiles In response to the work group’s finding that streamlining the regulatory process needed further study, FDA recently announced that it is examining regulations governing manufacturing processes for both drugs and vaccine products to determine if reform is needed. However, FDA officials told us it is too early to define the scope and time frame for this reexamination. Regarding financial incentives for vaccine development, the Institute of Medicine is currently conducting a study of vaccine pricing and financing strategies that may address this issue. In regard to liability protections, the work group did make recommendations to strengthen the Vaccine Injury Compensation Program (VICP). VICP is a federal program authorized in 1986 to reduce vaccine manufacturers’ liability by compensating individuals for childhood-vaccine-related injuries from a VICP trust fund. The program was established, in part, to help stem the exodus of manufacturers from the vaccine business due to liability concerns. Manufacturers, however, reported a recent resurgence of childhood-vaccine-related lawsuits— including class action lawsuits related to past use of thimerosal—that allege that the lawsuits are not subject to VICP. While the work group acknowledged that recent vaccine shortages do not appear to be related to VICP liability issues, it indicated that strengthening VICP would encourage manufacturers to enter, or remain in, the vaccine production business. Legislation has been introduced for the purpose of clarifying and modifying VICP. Also consistent with the work group’s recommendations, CDC is considering whether additional vaccine stockpiles will help stabilize the nation’s vaccine supply. In 1993, with the establishment of the VFC program, CDC was required to purchase sufficient quantities of pediatric vaccines not only to meet normal usage, but also to provide an additional 6-month supply to meet unanticipated needs. Further, to ensure funding, CDC was authorized to make such purchases in advance of appropriations. Despite this requirement, to date, CDC has established partial stockpiles for only two—measles-mumps-rubella (MMR) and inactivated polio vaccine (IPV)—of the eight recommended childhood vaccines. Even if CDC decides to stockpile additional vaccines, the limited supply and manufacturing capacity will restrict CDC’s ability to build certain stockpiles in the near term. CDC estimates it could take 4 to 5 years to build stockpiles for all the currently recommended childhood vaccines—at a cost of $705 million. Past experience also demonstrates the difficulty of rapidly building stockpiles. Neither the current IPV nor MMR stockpiles have ever achieved target levels because of limited manufacturing capacity. In addition to these challenges, CDC will also need to address issues regarding its authority, strategy, and information needed to use stockpiled vaccines. Authority - It is uncertain whether stockpiled vaccines purchased with VFC funds can be used for non-VFC-eligible children. While the 1993 legislation required the Secretary of HHS to negotiate for a 6-month stockpile of vaccines to meet unanticipated needs, the legislation did not state that the supply of stockpiled vaccines may be made available for children not otherwise eligible through the VFC program. CDC officials said that the VFC legislation is unclear as to whether stockpiled vaccines can be used for all children. Strategy - Expanding the number of CDC vaccine stockpiles will require a substantial planning effort—an effort that is not yet complete. For example, CDC has not made key decisions about vaccine stockpiles to ensure their ready release, including the quantity of each vaccine to stockpile, the form of storage, and storage locations. Also, to ensure that use of a stockpile does not disrupt supply to other purchasers, procedures would need to be developed to ensure that stockpiles represent additional quantities to a manufacturer’s normal inventory levels.

Vaccine shortages began to appear in November 2000, when supplies of the tetanus and diptheria booster fell short. By October 2001, the Centers for Disease Control and Prevention (CDC) reported shortages of five vaccines that protect against eight childhood diseases. In addition to diptheria and tetanus vaccines, vaccines to protect against pertussis, invasive pneumococcal disease, measles, mumps, rubella, and varicella were in short supply. In July 2002, updated CDC data indicated supplies were returning to normal for most vaccines. However, the shortage of vaccine to protect against invasive pneumococcal disease was expected to continue through at least late 2002. Shortages have prompted federal authorities to recommend deferring some vaccinations and have caused most states to reduce or suspend immunization requirements for school and day care programs so that children who have not received all mandatory immunizations can enroll. States are concerned that failure to be vaccinated at a later date may reduce the share of the population protected and increase the potential for disease to spread; however, data are not currently available to measure these effects. Many factors, including production problems and unanticipated demand for new vaccines, contributed to recent shortages. Although problems leading to the shortages have largely been resolved, the potential exists for shortages to recur. Federal agencies and advisory committees are exploring ways to help stabilize the nation's vaccine supply, but few long-term solutions have emerged. Although CDC is considering expanding vaccine stockpiles to provide a cushion in the event of a supply disruption, limited supply and manufacturing capacity will restrict CDC's ability to build them.

ICE has designed some management controls to govern 287(g) program implementation, such as MOAs with participating agencies that identify the roles and responsibilities of each party, background checks of officers applying to participate in the program, and a 4-week training course with mandatory course examinations for participating officers. However, the program lacks several other key controls. For example Program Objectives: While ICE officials have stated that the main objective of the 287(g) program is to enhance the safety and security of communities by addressing serious criminal activity committed by removable aliens, they have not documented this objective in program- related materials consistent with internal control standards. As a result, some participating agencies are using their 287(g) authority to process for removal aliens who have committed minor offenses, such as speeding, carrying an open container of alcohol, and urinating in public. None of these crimes fall into the category of serious criminal activity that ICE officials described to us as the type of crime the 287(g) program is expected to pursue. While participating agencies are not prohibited from seeking the assistance of ICE for aliens arrested for minor offenses, if all the participating agencies sought assistance to remove aliens for such minor offenses, ICE would not have detention space to detain all of the aliens referred to them. ICE’s Office of Detention and Removal strategic plan calls for using the limited detention bed space available for those aliens that pose the greatest threat to the public until more alternative detention methods are available. Use of Program Authority: ICE has not consistently articulated in program-related documents how participating agencies are to use their 287(g) authority. For example, according to ICE officials and other ICE documentation, 287(g) authority is to be used in connection with an arrest for a state offense; however, the signed agreement that lays out the 287(g) authority for participating agencies does not address when the authority is to be used. While all 29 MOAs we reviewed contained language that authorizes a state or local officer to interrogate any person believed to be an alien as to his right to be or remain in the United States, none of them mentioned that an arrest should precede use of 287(g) program authority. Furthermore, the processing of individuals for possible removal is to be in connection with a conviction of a state or federal felony offense. However, this circumstance is not mentioned in 7 of the 29 MOAs we reviewed, resulting in implementation guidance that is not consistent across the 29 participating agencies. A potential consequence of not having documented program objectives is misuse of authority. Internal control standards state that government programs should ensure that significant events are authorized and executed only by persons acting within the scope of their authority. Defining and consistently communicating how this authority is to be used would help ICE ensure that immigration enforcement activities undertaken by participating agencies are in accordance with ICE policies and program objectives. Supervision of Participating Agencies: Although the law requires that state and local officials use 287(g) authority under the supervision of ICE officials, ICE has not described in internal or external guidance the nature and extent of supervision it is to exercise over participating agencies’ implementation of the program. This has led to wide variation in the perception of the nature and extent of supervisory responsibility among ICE field officials and officials from 23 of the 29 participating agencies that had implemented the program and provided information to us on ICE supervision. For example, one ICE official said ICE provides no direct supervision over the local law enforcement officers in the 287(g) program in their area of responsibility. Conversely, another ICE official characterized ICE supervisors as providing frontline support for the 287(g) program. ICE officials at two additional offices described their supervisory activities as overseeing training and ensuring that computer systems are working properly. ICE officials at another field office described their supervisory activities as reviewing files for completeness and accuracy. Officials from 14 of the 23 agencies that had implemented the program were pleased with ICE’s supervision of the 287(g) trained officers. Officials from another four law enforcement agencies characterized ICE’s supervision as fair, adequate, or provided on an as-needed basis. Officials from three agencies said they did not receive direct ICE supervision or that supervision was not provided daily, which an official from one of these agencies felt was necessary to assist with the constant changes in requirements for processing of paperwork. Officials from two law enforcement agencies said ICE supervisors were either unresponsive or not available. ICE officials in headquarters noted that the level of ICE supervision provided to participating agencies has varied due to a shortage of supervisory resources. Internal control standards require an agency’s organizational structure to define key areas of authority and responsibility. Given the rapid growth of the program, defining the nature and extent of ICE’s supervision would strengthen ICE’s assurance that management’s directives are being carried out. Tracking and Reporting Data: MOAs that were signed before 2007 did not contain a requirement to track and report data on program implementation. For the MOAs signed in 2007 and after, ICE included a provision stating that participating agencies are responsible for tracking and reporting data to ICE. However, in these MOAs, ICE did not define what data should be tracked or how it should be collected and reported. Of the 29 jurisdictions we reviewed, 9 MOAs were signed prior to 2007 and 20 were signed in 2007 or later. Regardless of when the MOAs were signed, our interviews with officials from the 29 participating jurisdictions indicated confusion regarding whether they had a data tracking and reporting requirement, what type of data should be tracked and reported, and what format they should use in reporting data to ICE. Internal control standards call for pertinent information to be recorded and communicated to management in a form and within a time frame that enables management to carry out internal control and other responsibilities. Communicating to participating agencies what data is to be collected and how it should be gathered and reported would help ensure that ICE management has the information needed to determine whether the program is achieving its objectives. Performance Measures: ICE has not developed performance measures for the 287(g) program to track and evaluate the progress toward attaining the program’s objectives. GPRA requires that agencies clearly define their missions, measure their performance against the goals they have set, and report on how well they are doing in attaining those goals. Measuring performance allows organizations to track the progress they are making toward their goals and gives managers critical information on which to base decisions for improving their programs. ICE officials stated that they are in the process of developing performance measures, but have not provided any documentation or a time frame for when they expect to complete the development of these measures. ICE officials also stated that developing measures for the program will be difficult because each state and local partnership agreement is unique, making it challenging to develop measures that would be applicable for all participating agencies. Nonetheless, standard practices for program and project management call for specific desired outcomes or results to be conceptualized and defined in the planning process as part of a road map, along with the appropriate projects needed to achieve those results and milestones. Without a plan for the development of performance measures, including milestones for their completion, ICE lacks a roadmap for how this project will be achieved. ICE and participating agencies used program resources mainly for personnel, training, and equipment, and participating agencies reported activities, benefits, and concerns stemming from the program. For fiscal years 2006 through 2008, ICE received about $60 million to provide training, supervision, computers, and other equipment for participating agencies. State and local participants provided officers, office space, and other expenses not reimbursed by ICE, such as office supplies and vehicles. ICE and state and local participating agencies cite a range of benefits associated with the 287(g) partnership. For example, as of February 2009, ICE reported enrolling 67 agencies and training 951 state and local law enforcement officers. At that time, ICE had 42 additional requests for participation in the 287(g) program, and 6 of the 42 have been approved pending approval of an MOA. According to data provided by ICE for 25 of the 29 program participants we reviewed, during fiscal year 2008, about 43,000 aliens had been arrested pursuant to the program. Based on the data provided, individual agency participant results ranged from about 13,000 arrests in one location, to no arrests in two locations. Of those 43,000 aliens arrested pursuant to the 287(g) authority, ICE detained about 34,000, placed about 14,000 of those detained (41 percent) in removal proceedings, and arranged for about 15,000 of those detained (44 percent) to be voluntarily removed. The remaining 5,000 (15 percent) arrested aliens detained by ICE were either given a humanitarian release, sent to a federal or state prison to serve a sentence for a felony offense, or not taken into ICE custody given the minor nature of the underlying offense and limited availability of the federal government’s detention space. Participating agencies cited benefits of the program including a reduction in crime and the removal of repeat offenders. However, more than half of the 29 state and local law enforcement agencies we reviewed reported concerns community members expressed about the 287(g) program, including concerns that law enforcement officers in the 287(g) program would be deporting removable aliens pursuant to minor traffic violations (e.g., speeding) and concerns about racial profiling. We made several recommendations to strengthen internal controls for the 287(g) program to help ensure the program operates as intended. Specifically, we recommended that ICE (1) document the objective of the 287(g) program for participants, (2) clarify when the 287(g) authority is authorized for use by state and local law enforcement officers, (3) document the nature and extent of supervisory activities ICE officers are expected to carry out as part of their responsibilities in overseeing the implementation of the 287(g) program, (4) specify the program information or data that each agency is expected to collect regarding their implementation of the 287(g) program and how this information is to be reported, and (5) establish a plan, including a time frame, for the development of performance measures for the 287(g) program. DHS concurred with each of our recommendations and reported plans and steps taken to address them. Mr. Chairman and Members of the Committee, this concludes my statement. I would be pleased to respond to any questions you or other Members of the Committee may have. For questions about this statement, please contact Richard Stana at 202- 512-8777 or stanar@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Bill Crocker, Lori Kmetz, Susanna Kuebler, and Adam Vogt. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony discusses the Department of Homeland Security's (DHS) U.S. Immigration and Customs Enforcement's (ICE) management of the 287(g) program. Recent reports indicate that the total population of unauthorized aliens residing in the United States is about 12 million. Some of these aliens have committed one or more crimes, although the exact number of aliens that have committed crimes is unknown. Some crimes are serious and pose a threat to the security and safety of communities. ICE does not have the agents or the detention space that would be required to address all criminal activity committed by unauthorized aliens. Thus, state and local law enforcement officers play a critical role in protecting our homeland because, during the course of their daily duties, they may encounter foreign-national criminals and immigration violators who pose a threat to national security or public safety. On September 30, 1996, the Illegal Immigration Reform and Immigrant Responsibility Act was enacted and added section 287(g) to the Immigration and Nationality Act. This section authorizes the federal government to enter into agreements with state and local law enforcement agencies, and to train selected state and local officers to perform certain functions of an immigration officer--under the supervision of ICE officers--including searching selected federal databases and conducting interviews to assist in the identification of those individuals in the country illegally. The first such agreement under the statute was signed in 2002, and as of February 2009, 67 state and local agencies were participating in this program. The testimony today is based on our January 30, 2009, report regarding the program including selected updates made in February 2009. Like the report, this statement addresses (1) the extent to which Immigration and Customs Enforcement has designed controls to govern 287(g) program implementation and (2) how program resources are being used and the activities, benefits, and concerns reported by participating agencies. To do this work, we interviewed officials from both ICE and participating agencies regarding program implementation, resources, and results. We also reviewed memorandums of agreement (MOA) between ICE and the 29 law enforcement agencies participating in the program as of September 1, 2007, that are intended to outline the activities, resources, authorities, and reports expected of each agency. We also compared the controls ICE designed to govern implementation of the 287(g) program with criteria in GAO's Standards for Internal Control in the Federal Government, the Government Performance and Results Act (GPRA), and the Project Management Institute's Standard for Program Management. More detailed information on our scope and methodology appears in the January 30, 2009 report. In February 2009, we also obtained updated information from ICE regarding the number of law enforcement agencies participating in the 287(g) program as well as the number of additional law enforcement agencies being considered for participation in the program. We conducted our work in accordance with generally accepted government auditing standards. In summary, ICE has designed some management controls, such as MOAs with participating agencies and background checks of officers applying to participate in the program, to govern 287(g) program implementation. However, the program lacks other key internal controls. Specifically, program objectives have not been documented in any program-related materials, guidance on how and when to use program authority is inconsistent, guidance on how ICE officials are to supervise officers from participating agencies has not been developed, data that participating agencies are to track and report to ICE has not been defined, and performance measures to track and evaluate progress toward meeting program objectives have not been developed. Taken together, the lack of internal controls makes it difficult for ICE to ensure that the program is operating as intended. ICE and participating agencies used program resources mainly for personnel, training, and equipment, and participating agencies reported activities and benefits, such as a reduction in crime and the removal of repeat offenders. However, officials from more than half of the 29 state and local law enforcement agencies we reviewed reported concerns members of their communities expressed about the use of 287(g) authority for minor violations and/or about racial profiling. We made several recommendations to strengthen internal controls for the 287(g) program to help ensure that the program operates as intended. DHS concurred with our recommendations and reported plans and steps taken to address them.

According to senior SBA officials in headquarters and the field, several aspects of the current organizational alignment contribute to the challenges faced by SBA management. The problem areas include cumbersome communication links between headquarters and field units; complex, overlapping organizational relationships; confusion about the district offices’ primary customer; and a field structure not consistently matched with mission requirements. According to the agency scorecard report for SBA, while SBA recognizes the need to restructure, little progress has been made to date. In response to our findings and additional challenges identified by OMB and the SBA Inspector General, SBA drafted a 5-Year Workforce Transformation Plan. The 1990s realignment—in which the regions were downsized, but not eliminated, and the Office of Field Operations was created, but never fully staffed—resulted in the cumbersome communication links between headquarters and field units according to senior SBA officials in headquarters and the field. The Office of Field Operations had fewer than 10 staff at the time of our review, and senior SBA officials told us that it would be impossible for such a small office to facilitate the flow of information between headquarters and district offices as well as was done by the 10 regional offices when each region had its own liaison staff. As a result, headquarters program offices sometimes communicate with the district offices directly and they sometimes go through the Office of Field Operations. To further complicate communication, the regional offices are still responsible for monitoring goals and coordinating administrative priorities to the district locations. Officials described how these multiple lines of communication have led to district staff being on the receiving end of conflicting or redundant requests. While some SBA officials felt that the regions had a positive effect on communication between headquarters and the districts, others felt that the regions were an unnecessary layer of management. The SBA Inspector General’s office found similar problems with communication within SBA when it conducted management challenge discussion groups with almost 50 senior officials from SBA headquarters, regional, and district offices. SBA has recognized that as it transforms itself, it needs to make the lines of communication between the districts, regions, and headquarters clearer to help bring about quick, effective decision-making. SBA plans to increase the responsibilities of the regional offices, perhaps by adding a career deputy regional administrator to assist the Regional Administrator in overseeing the district offices. Under SBA’s draft plan, the deputy would also work closely with the Office of Field Operations to coordinate program delivery in the field. We also found evidence of complex, overlapping organizational relationships, particularly among field and headquarters units. For example, district staff working on SBA loan programs report to their district management, while loan processing and servicing center staff report directly to the Office of Capital Access in headquarters. Yet, district office loan program staffs sometimes need to work with the loan processing and servicing centers to get information or to expedite loans for lenders in their district. Because loan processing and servicing centers report directly to the Office of Capital Access, requests that are directed to the centers sometimes must go from the district through the Office of Capital Access then back to the centers. District managers and staff said that sometimes they cannot get answers to questions when lenders call and that they have trouble expediting loans because they lack authority to direct the centers to take any action. Lender association representatives said that the lines of authority between headquarters and the field can be confusing and that practices vary from district to district. Figure 1 depicts the variety of organizational relationships we found between SBA headquarters and field units. SBA plans to eliminate the current complicated overlapping organizational relationships between field organizations and headquarters organizations by consolidating functions and establishing specific lines of authority. SBA’s draft transformation plan states that this effort will reduce management layers and provide a more efficient management structure. Specifically, SBA plans to further centralize loan processing, servicing, oversight, and liquidation functions; eliminate area offices for surety bonds and procurements by making regional or district offices responsible; and move oversight for entrepreneurial development programs to district offices. We found disagreement within SBA over the primary customer of the district offices. Headquarters executives said that the district offices primarily serve small businesses, while district office officials told us that their primary clients are lenders. The headquarters officials said that the role of the district office was in transition and that, because many lending activities had been centralized, the new role for the district offices was to work with small businesses. However, the district office managers said that their performance ratings were weighted heavily on aspects of loan activity. Moreover, there is only one program—8(a) business development—through which district offices typically work directly with small businesses, further reinforcing the perception of the district managers that lenders rather than small businesses are their primary customers. According to SBA’s transformation plan, the mission of its districts will become one of marketing SBA’s continuum of services, focusing on the customer, and providing entrepreneurial development assistance. SBA stated that over the next 5 years, it is fully committed to making fundamental changes at the district level, changes that have been discussed for years, but have never been fully implemented. To begin this change, SBA plans to test specific strategies for focusing district offices’ goals and efforts on outreach and marketing of SBA services to small businesses and on lender oversight in three offices during fiscal year 2002. SBA plans to implement the results in 10-20 districts in fiscal year 2003. As part of this change, SBA will need to carefully consider how the new mission of its district offices will affect the knowledge, skills, and abilities—competencies—district staff will need to be successful in their new roles. If competency gaps are identified, SBA will need to develop recruitment, training, development, and performance management programs to address those gaps. SBA managers said that, in some cases, the current field structure does not consistently match mission requirements. For example, the creation of loan processing and servicing centers moved some, but not all, loan- related workload out of the district offices. District offices retained responsibility for the more difficult loans and loans made by infrequent lenders. Similarly, the regional offices were downsized, but not eliminated during the 1990s. In addition, they said that some offices and centers are not located to best accomplish the agency’s mission. For example, Iowa has two district offices located less than 130 miles apart, and neither manages a very large share of SBA’s lending program or other workload. SBA also has a loan-related center located in New York City, a very high- cost area where it has trouble attracting and retaining staff. Figure 2 shows the locations of SBA offices around the country. SBA officials also stressed that congressional direction has played a part in SBA’s current structure. SBA officials pointed out that Congress has created many new offices, programs, aspects of existing programs, and pilot projects and has prescribed reporting relationship, grade, and/or type of appointment for several senior SBA officials. We found 78 offices, programs, or program changes that were created by laws since 1961, with most of the changes occurring in the 1980s and 1990s. Eleven SBA staff positions and specific reporting relationships were also required by law. In its transformation plan, SBA discusses its difficulty with matching its field structure with mission requirements and states that in order for the field structure to reflect the new mission and customer focus, consolidation of functions and the elimination or reduction of redundant offices may be necessary. The result of consolidations will be a streamlined organization with reduced management layers and an increased span of control for the field organizations that remain. For example, over the course of the 5-year plan, SBA plans to consolidate all loan processing, servicing, and liquidation into fewer centers, but give them an expanded role for handling all the functions currently carried out in the district offices. Integrating personnel, programs, processes, and resources to support the most efficient and effective delivery of services—organizational alignment—is key to maximizing an agency’s performance and ensuring its accountability. The often difficult choices that go into transforming an organization to support its strategic and programmatic goals have enormous implications for future decisions. Our work has shown that the major elements that underpin a successful transformation—and that SBA should consider employing—include strategic planning; strategic human capital management; senior leadership and accountability; alignment of activities, processes, and resources to support mission achievement; and internal and external collaboration. Proactive organizations employ strategic planning to determine and reach agreement on the fundamental results the organization seeks to achieve, the goals and measures it will set to assess programs, and the resources and strategies it will need to achieve its goals. Strategic planning is used to drive programmatic decision-making and day-to-day actions and, thereby, help the organization be proactive, able to anticipate and address emerging threats, and take advantage of opportunities, rather than remain reactive to events and crises. Leading organizations, therefore, understand that strategic planning is not a static or occasional event, but a continuous, dynamic, and inclusive process. Moreover, it can guide decision-making and day-to-day activities. According to the agency scorecard report, SBA has not articulated a clear vision of what role it should fill in the marketplace. In our review of SBA’s fiscal year 2000 performance report and fiscal year 2002 performance plan, we reported that we had difficulty assessing SBA’s progress in achieving its goals because of weaknesses in its performance measures and data.We said that SBA should more clearly link strategies to measurable performance indicators, among other things. SBA said it has made adjustments to its managing for results process and now has identified specific performance parameters that must be met. Additionally, SBA recognizes the need for its workforce transformation plan and 5-Year Strategic Plan to complement each other. People—or human capital—are an organization’s most important asset and define its character, affect its capacity to perform, and represent its knowledge base. We have recently released an exposure draft of a model of strategic human capital management that highlights the kinds of thinking that agencies should apply and steps they can take to manage their human capital more strategically. The model focuses on four cornerstones for effective human capital management—leadership; strategic human capital planning; acquiring, developing, and retaining talent; and results-oriented organizational cultures—and a set of associated critical success factors that SBA and other federal agencies may find useful in helping to guide their efforts. In its workforce transformation plan, SBA said that it recognizes that employees are its most valuable asset. It plans to emphasize the importance of human capital by clearly defining new agency functions and identifying and developing the skills and competencies required to carry out the new mission. SBA also plans, beginning in fiscal year 2002, to conduct a comprehensive skill and gap analysis for all employees. In addition, SBA will increase its emphasis on its two succession planning programs, the Senior Executive Service Candidate Development Program and the District Director Development Program, to recruit qualified individuals for future leadership roles. SBA also said that it plans to increase the number of professional development opportunities for employees to ensure that they can build missing competencies. The importance of senior leadership and commitment to change is essential. Additionally, high performing organizations have recognized that a key element of an effective performance management system is to create a “line of sight” that shows how individual responsibilities and day-to-day activities are intended to contribute to organizational goals. In addition to creating “lines of sight,” a performance management system should encourage staff to focus on performing their duties in a manner that helps the organization achieve its objectives. The SBA Administrator has demonstrated his commitment to transforming SBA by tasking his Deputy Administrator and Chief Operating Officer with coordinating the implementation of SBA’s 5-year workforce transformation plan. He also said that the transformation plan will complement the agency’s 5-Year Strategic Plan and that SBA’s successes will be measured by the successes of its clients. These are important steps in aligning expectations within the agency toward agency goals. As SBA begins to implement its transformation plan, it will also be important to be certain that agency goals are reflected in the performance objectives and ratings of SBA’s senior executives and the performance appraisal systems for lower-level employees. Sustained senior management attention to implementation of the plan and support from key internal and external stakeholders will be important ingredients in the ultimate success or failure of SBA’s transformation. An organization’s activities, core processes, and resources must be aligned to support its mission and help it achieve its goals. Leading organizations start by assessing the extent to which their programs and activities contribute to fulfilling their mission and intended results. They often find, as our work suggested, that their organizational structures are obsolete and that levels of hierarchy or field-to-headquarter ratios must be changed. Similarly, as priorities change, resources must be moved and workforces redirected to meet changing demands. According to the President’s Management Agenda, while SBA recognizes the need to restructure, little progress has been made to date and SBA has not translated the benefits of asset sales and technological improvements into human resource efficiencies. In response, SBA drafted a 5-Year Workforce Transformation Plan intended to adjust its programs and delivery mechanisms to reflect new ways of doing business and the changing needs of its clients. SBA said that it plans to continue with asset sales, to enhance technology by using contractors, and to use technology to move work to people—more of whom will be deployed at smaller facilities in the future. There is also a growing understanding that all meaningful results that agencies hope to achieve are accomplished through networks of governmental and nongovernmental organizations working together toward a common purpose. Internally, leading organizations seek to provide managers, teams, and employees at all levels the authority they need to accomplish programmatic goals and work collaboratively to achieve organizational outcomes. Communication flows up and down the organization to ensure that line staffs have the ability to provide leadership with the perspective and information that the leaders need to make decisions. Likewise, senior leaders keep the line staff informed of key developments and issues so that the staff can best contribute to achieving organizational goals. SBA has long understood the need for collaboration. In the late 1980s, SBA shifted its core functions of direct loan making and entrepreneurial assistance to reliance on resource partners to deliver SBA programs directly. This shift allowed SBA to greatly increase its loan volume and the number of clients served. However, SBA has lost much of its direct connection with its small business owner clients. SBA has only recently begun to develop the appropriate oversight tools for its resource partners and the appropriate success measures for its programs and staff. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other Members of the Subcommittee may have at this time.

The Small Business Administration (SBA) has made organizational structure and service delivery changes during the past 10 years. However, ineffective lines of communication, confusion over the mission of district offices, complicated and overlapping organizational relationships, and a field structure not consistently matched with mission requirements all combine to impede SBA staff efforts to deliver services effectively. SBA's structural inefficiencies stem in part from realignment efforts during the mid-1990s that changed SBA's functions but left aspects of the previous structure intact, congressional influence over the location of field offices and centers, and legislative requirements such as specified reporting relationships. In response to GAO's findings and additional challenges identifies by the Office of Management and Budget and the SBA Inspector General, SBA recently announced a draft 5-year workforce transformation plan that discusses many of GAO's findings regarding the difficulties posed by its current structure. Organizational alignment is crucial if an agency is to maximize its performance and accountability. As SBA executes its workforce transformation plan, it should employ strategies common to successful transformation efforts both here and abroad. Successful efforts begin with instilling senior-level leadership, responsibility, and accountability for organizational results and transformation efforts. Organizations that have successful undertaken transformation efforts also typically use strategic planning and human capital management, alignment of activities, processes, and resources, and internal and external collaboration to underpin their efforts.

In our 2005 report, we found that facilities-related problems at the Smithsonian had resulted in a few building closures and access restrictions and some cases of damage to the collections. A few facilities had deteriorated to the point where access must be denied or limited. For example, the 1881 Arts and Industries Building on the National Mall was closed to the public in 2004 for an indefinite period, pending repair of its weakened roof panels, renovation of its interior (which had been damaged by water intrusion), and replacement of aging systems such as heating and cooling. Currently, this building remains closed. Other facilities also faced problems. We found that water leaks caused by deteriorated piping and roofing elements, along with humidity and temperature problems in buildings with aging systems, posed perhaps the most pervasive threats to artifacts in the museums and storage facilities. For example, leaks have damaged two historic aircraft at the National Air and Space Museum. Additionally, Smithsonian Archives officials told us that they had had to address 19 “water emergencies” since June 2002. These problems were indicative of a broad decline in the Smithsonian’s aging facilities and systems that posed a serious long-term threat to the collections. We also found that the Smithsonian had taken steps to maximize the effectiveness of its resources for facilities. These changes resulted from an internal review and a 2001 report by the National Academy of Public Administration, which recommended that the Smithsonian centralize its then highly decentralized approach to facilities management and budgeting in order to promote uniform policies and procedures, improve accountability, and avoid duplication. The Smithsonian created the Office of Facilities Engineering and Operations in 2003 to assume responsibility for all facilities-related programs and budgets. At the time of our 2005 review, this office was adopting a variety of recognized industry best practices for managing facilities projects, such as the use of benchmarking and metrics recommended by the Construction Industry Institute and leading capital decision-making practices. Preliminary results from our ongoing work show that as of March 30, 2007, the Smithsonian estimates it will need about $2.5 billion for revitalization, construction, and maintenance projects identified from fiscal year 2005 through fiscal year 2013, an increase of about $200 million from its 2005 estimate of about $2.3 billion for the same time period. Smithsonian officials stated that to update this estimate, they identified changes that had occurred to project cost figures used in the 2005 estimate and then subtracted from the new total the appropriations the Smithsonian had received for facilities revitalization, construction, and maintenance projects for fiscal years 2005-2007. According to Smithsonian officials, this estimate includes only costs for which the Smithsonian expects to receive federal funds. Projects that have been or are expected to be funded through the Smithsonian’s private trust funds were not included as part of the estimate, although the Smithsonian has used these trust funds to support some facilities projects. For example, the Steven F. Udvar-Hazy Center was funded largely through trust funds. According to Smithsonian officials, maintenance and capital repair projects are not generally funded through trust funds. At the time of our 2005 report, Smithsonian officials told us that the Smithsonian’s estimate of about $2.3 billion could increase for a variety of reasons. For example, the estimate was largely based on preliminary assessments. Moreover, in our previous report, we found that recent additions to the Smithsonian’s building inventory—the National Museum of the American Indian and the Steven F. Udvar-Hazy Center—and the reopening of the revitalized Donald W. Reynolds Center for American Art and Portraiture on July 1, 2006 would add to the Smithsonian’s annual maintenance costs. According to Smithsonian officials, the increase in its estimated revitalization, construction, and maintenance costs through fiscal year 2013 from about $2.3 billion in our 2005 report to about $2.5 billion as of March 30, 2007, was due to several factors. For example, Smithsonian officials said that major increases had occurred in projects for the National Zoo and the National Museum of American History because the two facilities had recently had master plans developed that identified additional requirements. In addition, according to Smithsonian officials, estimates for anti-terrorism projects had increased due to adjustments for higher costs experienced and expected for security-related projects at the National Air and Space Museum. According to Smithsonian officials, the increase also reflects the effect of delaying corrective work in terms of additional damage and escalation in construction costs. According to Smithsonian officials, the Smithsonian’s March 30, 2007, estimate of about $2.5 billion could also increase, as the about $2.3 billion estimate was largely based on preliminary assessments, and therefore, as the Smithsonian completes more master plans, more items will be identified that need to be done. Moreover, this estimate does not include the estimated cost of constructing the National Museum of African American History and Culture, which was authorized by Congress and which the Smithsonian notionally estimates may cost about $500 million, half of which is to be funded by Congressional appropriations. The Smithsonian’s annual operating and capital program revenues come from its own private trust fund assets and its federal appropriation. According to Smithsonian officials, the Smithsonian’s federal appropriation totaled nearly $635 million in fiscal year 2007, with about $99 million for facilities capital and about $536 million for salaries and expenses, of which the facilities maintenance appropriation, which falls within the salaries and expenses category, was about $51 million. In our previous work, we found that the facilities projects planned for the next 9 years exceeded funding at this level. As a result, we recommended that the Secretary of the Smithsonian establish a process for exploring options for funding its facilities needs and engaging the key stakeholders—the Smithsonian Board of Regents, the Administration, and Congress—in the development and implementation of a strategic funding plan to address the revitalization, construction, and maintenance projects identified by the Smithsonian. Smithsonian officials told us during our current review that the Smithsonian Board of Regents —the Smithsonian’s governing body, which is comprised of both private citizens and members of all three branches of the federal government—has taken some steps to address our recommendation. In June 2005, the Smithsonian Board of Regents established the ad-hoc Committee on Facilities Revitalization to explore options to address the about $2.3 billion the Smithsonian estimated it needed for facilities revitalization, construction, and maintenance projects through fiscal year 2013. In September 2005, the ad-hoc committee held its first meeting, at which it reviewed nine funding options that had been prepared by Smithsonian management for addressing the about $2.3 billion in revitalization, construction, and maintenance projects through fiscal year 2013. These options included the following: Federal income tax check off contribution, in which federal income tax returns would include a check-off box to allow taxpayers to designate some of their tax liability to a special fund for the Smithsonian’s facilities. Heritage treasures excise tax, in which an excise tax would be created, and possibly levied on local hotel bills, to generate funds for the Smithsonian’s facilities. National fundraising campaign, in which the Smithsonian would launch a national campaign to raise funds for its facilities. General admission fee program, in which the Smithsonian would institute a general admission charge to raise funds for critical but unfunded requirements. Special exhibition fee program, in which the Smithsonian would charge visitors to attend a select number of special exhibitions as a means to raise funds to meet critical but unfunded requirements. Smithsonian treasures pass program, in which the Smithsonian would design a program through which visitors could purchase a Smithsonian treasures pass with special benefits, such as no-wait entry into facilities or behind-the-scenes tours, to raise funds to meet critical but unfunded requirements. Facilities revitalization bond, in which the Smithsonian would borrow funds such as through a private or public debt bond for the Smithsonian’s facilities. Closing Smithsonian museums, in which the Smithsonian would permanently or temporarily close museums to the public in order to generate savings to help fund its facilities. Increasing Smithsonian appropriations, in which the Board of Regents and other friends of the Smithsonian would approach the Administration about a dramatic appropriations increase to fund Smithsonian’s facilities. According to Smithsonian officials, after considering these nine proposed options, the ad-hoc committee decided to request an increase in the Smithsonian’s annual federal appropriations, specifically deciding to request an additional $100 million over the Smithsonian’s current appropriation annually for 10 years, starting in fiscal year 2008, to reach a total of an additional $1 billion. In September 2006, according to Smithsonian officials, several members of the Board of Regents and the Secretary of the Smithsonian met with the President of the United States to discuss the issue of increased federal funding for the Smithsonian’s facilities. According to Smithsonian officials, during the meeting, among other things, the Regents discussed the problem of aging facilities and the need for an additional $100 million in federal funds annually for 10 years to address the institution’s facilities revitalization, maintenance, and construction needs. According to Smithsonian officials, the representatives of the Smithsonian at the meeting told the President that they had no other options to obtain this $100 million except the Smithsonian’s federal appropriation. According to Smithsonian officials, these representatives said the Smithsonian had made considerable expense cuts and raised substantial private funds, but donors are unwilling to donate money to repair and maintain facilities. The President’s fiscal year 2008 budget proposal, published in February 2007, proposed an increase of about $44 million over the Smithsonian’s fiscal year 2007 appropriation. The Smithsonian’s appropriation is divided into two categories. The about $44 million increase in the President’s budget proposal represented an increase of about $9 million for facilities capital and an increase of about $35 million for salaries and expenses, which includes facilities maintenance. However, funds in the salaries and expenses category also support many other activities, such as research, collections, and exhibitions, and it is not clear how much of the $35 million increase the Smithsonian would use for facilities maintenance. Moreover, Congress may choose to adopt or modify the President’s budget proposal when funds are appropriated for the fiscal year. As part of our ongoing work, we are reviewing the Smithsonian’s analysis of each funding option, including its potential for addressing its revitalization, construction, and maintenance needs. We plan to report on these issues later in the year. The Smithsonian’s estimate for revitalization, construction, and maintenance needs has increased at an average of about $100 million a year over the past 2 years. Therefore, the Smithsonian’s request for an additional $100 million a year may not actually reduce the Smithsonian’s estimated revitalization, construction, and maintenance needs but only offset the increase in this estimate. Absent significant changes in the Smithsonian’s funding strategy or significant increases in funding from Congress, the Smithsonian faces greater risk to its facilities and collections over time. Since our work is still ongoing, it remains unclear why the Smithsonian has only pursued one of its nine options for increasing funds to support its significant facilities needs. At this time, we still believe our recommendation that the Smithsonian explore a variety of funding options is important to reducing risks to the Smithsonian’s facilities and collections. Madam Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other Members of the Committee may have at this time. We conducted our work for this testimony in March 2007 in accordance with generally accepted government auditing standards. Our work is based on our past report on the Smithsonian’s facilities management and funding, our review of Smithsonian documents, and interviews with Smithsonian officials. Specifically, we reviewed the Smithsonian’s revised estimated costs for major revitalization projects from fiscal year 2005 through fiscal year 2013 and documents from the Board of Regents. We also reviewed the President’s fiscal year 2008 proposed budget and the Smithsonian’s federal appropriations from fiscal years 2005-2007. We are continuing to evaluate the Smithsonian’s efforts to strategically manage, fund, and secure its real property. Our objectives include assessing (1) the extent to which the Smithsonian is strategically managing its real property portfolio, (2) the extent to which the Smithsonian has developed and implemented strategies to fund its revitalization, construction, and maintenance needs, and (3) the Smithsonian’s security cost trends and challenges, including the extent to which the Smithsonian has followed key security practices to protect its assets. We are also examining how similar institutions, such as other museums and university systems, strategically manage, fund, and secure their real property. We expect to report on these issues later this year. In addition to those named above, Colin Fallon, Brandon Haller, Carol Henn, Susan Michal-Smith, Dave Sausville, Gary Stofko, Alwynne Wilbur, Carrie Wilks, and Adam Yu made key contributions to this report. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The Smithsonian Institution (Smithsonian) is the world's largest museum complex and research organization. The age of the Smithsonian's structures, past inattention to maintenance needs, and high visitation levels have left its facilities in need of revitalization and repair. This testimony discusses our prior work on some effects of the condition of the Smithsonian's facilities and whether the Smithsonian has taken steps to maximize facility resources. It also discusses the current estimated costs of the Smithsonian's needed facilities projects. In addition, it describes preliminary results of GAO's ongoing work on the extent to which the Smithsonian developed and implemented strategies to fund these projects, as GAO recommended in prior work. The work for this testimony is based on GAO's 2005 report, Smithsonian Institution: Facilities Management Reorganization Is Progressing, but Funding Remains a Challenge; GAO's review of Smithsonian documents and other pertinent information; and interviews with Smithsonian officials. In 2005, GAO reported that facilities-related problems at the Smithsonian had resulted in a few building closures and posed a serious long-term threat to the collections. For example, the 1881 Arts and Industries Building on the National Mall was closed to the public in 2004 for an indefinite period over concern about its deteriorating roof structure. Currently, this building remains closed. GAO also found that the Smithsonian had taken steps to maximize the effectiveness of its existing resources for facilities. Preliminary results of GAO's ongoing work indicate that as of March 30, 2007, the Smithsonian estimated it would need about $2.5 billion for its revitalization, construction, and maintenance projects from fiscal year 2005 through fiscal year 2013, up from an estimate of $2.3 billion in 2005. In 2005, GAO recommended that the Smithsonian develop and implement a strategic funding plan to address its facilities needs. The Smithsonian Board of Regents--the Smithsonian's governing body--has taken some steps to address GAO's recommendation regarding a strategic funding plan. The board created an ad-hoc committee, which, after reviewing nine options, such as establishing a special exhibition fee, decided to request an additional $100 million annually in federal funds for facilities for the next 10 years, for a total of an additional $1 billion. The President's fiscal year 2008 budget proposal, however, proposes an increase of about $44 million over the Smithsonian's fiscal year 2007 appropriation. It is not clear how much of this proposed increase would be used to support facilities, and how Congress will respond to the President's budget request. Absent significant changes in the Smithsonian's funding strategy or significant increases in funding from Congress, the Smithsonian faces greater risk to its facilities and collections over time. GAO is continuing to evaluate the Smithsonian's efforts to strategically manage, fund, and secure its real property. We expect to publish a report on these issues later this year.

Historically, the U.S. government has granted federal recognition through treaties, congressional acts, or administrative decisions within the executive branch—principally by the Department of the Interior. In a 1977 report to the Congress, the American Indian Policy Review Commission criticized the department’s tribal recognition policy. Specifically, the report stated that the department’s criteria to assess whether a group should be recognized as a tribe were not clear and concluded that a large part of the department’s policy depended on which official responded to the group’s inquiries. Nevertheless, until the 1960s, the limited number of requests for federal recognition gave the department the flexibility to assess a group’s status on a case-by-case basis without formal guidelines. However, in response to an increase in the number of requests for federal recognition, the department determined that it needed a uniform and objective approach to evaluate these requests. In 1978, it established a regulatory process for recognizing tribes whose relationship with the United States had either lapsed or never been established— although tribes may seek recognition through other avenues, such as legislation or Department of the Interior administrative decisions unconnected to the regulatory process. In addition, not all tribes are eligible for the regulatory process. For example, tribes whose political relationship with the United States has been terminated by Congress, or tribes whose members are officially part of an already recognized tribe, are ineligible to be recognized through the regulatory process and must seek recognition through other avenues. The regulations lay out seven criteria that a group must meet before it can become a federally recognized tribe. Essentially, these criteria require the petitioner to show that it is descended from a historic tribe and is a distinct community that has continuously existed as a political entity since a time when the federal government broadly acknowledged a political relationship with all Indian tribes. The following are the seven criteria for recognition under the regulatory process: (a) The petitioner has been identified as an American Indian entity on a substantially continuous basis since 1900, (b) A predominant portion of the petitioning group comprises a distinct community and has existed as a community from historical times until the present, (c) The petitioner has maintained political influence or authority over its members as an autonomous entity from historical times until the present, (d) The group must provide a copy of its present governing documents and membership criteria, (e) The petitioner’s membership consists of individuals who descend from a historical Indian tribe or tribes, which combined and functioned as a single autonomous political entity, (f) The membership of the petitioning group is composed principally of persons who are not members of any acknowledged North American Indian tribe, and (g) Neither the petitioner nor its members are the subject of congressional legislation that has expressly terminated or forbidden recognition. The burden of proof is on petitioners to provide documentation to satisfy the seven criteria. A technical staff within BIA, consisting of historians, anthropologists, and genealogists, reviews the submitted documentation and makes its recommendations on a proposed finding either for or against recognition. Staff recommendations are subject to review by the department’s Office of the Solicitor and senior BIA officials. The Assistant Secretary-Indian Affairs makes the final decision regarding the proposed finding, which is then published in the Federal Register and a period of public comment, document submission, and response is allowed. The technical staff reviews the comments, documentation, and responses and makes recommendations on a final determination that are subject to the same levels of review as a proposed finding. The process culminates in a final determination by the Assistant Secretary, who, depending on the nature of further evidence submitted, may or may not rule the same was as was ruled for the proposed finding. Petitioners and others may file requests for reconsideration with the Interior Board of Indian Appeals. While we found general agreement on the seven criteria that groups must meet to be granted recognition, there is great potential for disagreement when the question before BIA is whether the level of available evidence is high enough to demonstrate that a petitioner meets the criteria. The need for clearer guidance on criteria and evidence used in recognition decisions became evident in a number of recent cases when the previous Assistant Secretary approved either proposed or final decisions to recognize tribes when the technical staff had recommended against recognition. Most recently, the current Assistant Secretary has reversed a decision made by the previous Assistant Secretary. Much of the current controversy surrounding the regulatory process stems from these cases. At the heart of the uncertainties are different positions on what a petitioner must present to support two key aspects of the criteria. In particular, there are differences over (1) what is needed to demonstrate continuous existence and (2) what proportion of members of the petitioning group must demonstrate descent from a historic tribe. Concerns over what constitutes continuous existence have centered on the allowable gap in time during which there is limited or no evidence that a petitioner has met one or more of the criteria. In one case, the technical staff recommended that a petitioner not be recognized because there was a 70-year period for which there was no evidence that the petitioner satisfied the criteria for continuous existence as a distinct community exhibiting political authority. The technical staff concluded that a 70-year evidentiary gap was too long to support a finding of continuous existence. The staff based its conclusion on precedent established through previous decisions in which the absence of evidence for shorter periods of time had served as grounds for finding that petitioners did not meet these criteria. However, in this case, the previous Assistant Secretary determined that the gap was not critical and issued a proposed finding to recognize the petitioner, concluding that continuous existence could be presumed despite the lack of specific evidence for a 70-year period. The regulations state that lack of evidence is cause for denial but note that historical situations and inherent limitations in the availability of evidence must be considered. The regulations specifically decline to define a permissible interval during which a group could be presumed to have continued to exist if the group could demonstrate its existence before and after the interval. They further state that establishing a specific interval would be inappropriate because the significance of the interval must be considered in light of the character of the group, its history, and the nature of the available evidence. Finally, the regulations note that experience has shown that historical evidence of tribal existence is often not available in clear, unambiguous packets relating to particular points in time Controversy and uncertainty also surround the proportion of a petitioner’s membership that must demonstrate that it meets the criterion of descent from a historic Indian tribe. In one case, the technical staff recommended that a petitioner not be recognized because the petitioner could only demonstrate that 48 percent of its members were descendants. The technical staff concluded that finding that the petitioner had satisfied this criterion would have been a departure from precedent established through previous decisions in which petitioners found to meet this criterion had demonstrated a higher percentage of membership descent from a historic tribe. However, in the proposed finding, the Assistant Secretary found that the petitioner satisfied the criterion. The Assistant Secretary told us that although this decision was not consistent with previous decisions by other Assistant Secretaries, he believed the decision to be fair because the standard used for previous decisions was unfairly high. Again, the regulations intentionally left open key aspects of the criteria to interpretation. In this case they avoid establishing a specific percentage of members required to demonstrate descent because the significance of the percentage varies with the history and nature of the petitioner and the particular reasons why a portion of the membership may not meet the requirements of the criterion. The regulations state only that a petitioner’s membership must consist of individuals who descend from historic tribes—no minimum percentage or quantifying term such as “most” or “some” is used. The only additional direction is found in 1997 guidelines, which note that petitioners need not demonstrate that 100 percent of their membership satisfies the criterion In updating its regulations in 1994, the department grappled with both these issues and ultimately determined that key aspects of the criteria should be left open to interpretation to accommodate the unique characteristics of individual petitions. Leaving key aspects open to interpretation increases the risk that the criteria may be applied inconsistently to different petitioners. To mitigate this risk, BIA uses precedents established in past decisions to provide guidance in interpreting key aspects of the criteria. However, the regulations and accompanying guidelines are silent regarding the role of precedent in making decisions or the circumstances that may cause deviation from precedent. Thus, petitioners, third parties, and future decisionmakers, who may want to consider precedents in past decisions, have difficulty understanding the basis for some decisions. Ultimately, BIA and the Assistant Secretary will still have to make difficult decisions about petitions when it is unclear whether a precedent applies or even exists. Because these circumstances require judgment on the part of the decisionmaker, public confidence in BIA and the Assistant Secretary as key decisionmakers is extremely important. A lack of clear and transparent explanations for their decisions could cast doubt on the objectivity of the decisionmakers, making it difficult for parties on all sides to understand and accept decisions, regardless of the merit or direction of the decisions reached. Accordingly, in our November 2001 report, we recommended that the Secretary of the Interior direct BIA to provide a clearer understanding of the basis used in recognition decisions by developing and using transparent guidelines that help interpret key aspects of the criteria and supporting evidence used in federal recognition decisions. In commenting on a draft of this report, the department generally agreed with this recommendation. To implement the recommendation, the department pledged to formulate a strategic action plan by May 2002. To date, this plan is still in draft form. Officials told us that they anticipate completing the plan soon. In conclusion, BIA’s recognition process was never intended to be the only way groups could receive federal recognition. Nevertheless, it was intended to provide the Department of the Interior with an objective and uniform approach by establishing specific criteria and a process for evaluating groups seeking federal recognition. It is also the only avenue to federal recognition that has established criteria and a public process for determining whether groups meet the criteria. However, weaknesses in the process have created uncertainty about the basis for recognition decisions, calling into question the objectivity of the process. Without improvements that focus on fixing these and other problems on which we have reported, parties involved in tribal recognition may increasingly look outside of the regulatory process to the Congress or courts to resolve recognition issues, preventing the process from achieving its potential to provide a more uniform approach to tribal recognition. The result could be that the resolution of tribal recognition cases will have less to do with the attributes and qualities of a group as an independent political entity deserving a government-to-government relationship with the United States, and more to do with the resources that petitioners and third parties can marshal to develop successful political and legal strategies. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Committee may have at this time.

Federal recognition of an Indian tribe can dramatically affect economic and social conditions for the tribe and the surrounding communities because these tribes are eligible to participate in federal assistance programs. There are currently 562 recognized tribes with a total membership of 1.7 million, and several hundred groups are currently seeking recognition. In fiscal year 2002, Congress appropriated $5 billion for programs and funding, almost exclusively for recognized tribes. Recognition also establishes a formal government-to-government relationship between the United States and a tribe. The Indian Gaming Regulatory Act of 1988, which regulated Indian gaming operations, permits a tribe to operate casinos on land in trust if the state in which it lies allows casino-like gaming and if the tribe has entered into a compact with the state regulating its gaming businesses. In 1999, federally recognized tribes reported $10 billion in gaming revenue, surpassing the amounts that the Nevada casinos collected that year. Owing to the rights and benefits that accrue with recognition and the controversy surrounding Indian gaming, the Bureau of Indian Affairs' (BIA) regulatory process has been subject to intense scrutiny by groups seeking recognition and other interested parties--including already recognized tribes and affected state and local governments. BIA's regulatory process for recognizing tribes was established in 1978 and requires that groups that are petitioning for recognition submit evidence that they meet certain criteria--basically that the petitioner has continuously existed as an Indian tribe since historic times. Critics of the process claim that it produces inconsistent decisions and takes too long. The basis for BIA's tribal recognition decisions is not always clear. Although there are set criteria that petitioning tribes must meet to be granted recognition, there is no guidance that clearly explains how to interpret key aspects of the criteria. The lack of guidance over what level of evidence is sufficient to demonstrate that a tribe has continued to exist over time creates controversy and uncertainty for all parties about the basis for decisions reached.

As noted earlier, before a rule can become effective, it must be filed in accordance with the statute. GAO conducted a review to determine whether all final rules covered by CRA and published in the Register were filed with the Congress and GAO. We performed this review to both verify the accuracy of our database and to ascertain the degree of agency compliance with CRA. We were concerned that regulated entities may have been led to believe that rules published in the Federal Register were effective when, in fact, they were not unless filed in accordance with CRA. Our review covered the 10-month period from October 1, 1996, to July 31, 1997. In November 1997, we submitted to OIRA a computer listing of the rules that we found published in the Federal Register but not filed with our Office. This initial list included 498 rules from 50 agencies. OIRA distributed this list to the affected agencies and departments and instructed them to contact GAO if they had any questions regarding the list. Beginning in mid-February, because 321 rules remained unfiled, we followed up with each agency that still had rules which were unaccounted for. Our Office has experienced varying degrees of responses from the agencies. Several agencies, notably the Environmental Protection Agency and the Department of Transportation, took immediate and extensive corrective action to submit rules that they had failed to submit and to establish fail-safe procedures for future rule promulgation. Other agencies responded by submitting some or all of the rules that they had failed to previously file. Several agencies are still working with us to assure 100 percent compliance with CRA. Some told us they were unaware of CRA or of the CRA filing requirement. Overall, our review disclosed that: 279 rules should have been filed with us; 264 of these have subsequently 182 were found not to be covered by CRA as rules of particular applicability or agency management and thus were not required to be filed; 37 rules had been submitted timely and our database was corrected; and 15 rules from six agencies have thus far not been filed. We do not know if OIRA ever followed up with the agencies to ensure compliance with the filing requirement; we do know that OIRA never contacted GAO to determine if all rules were submitted as required. As a result of GAO’s compliance audit, however, 264 rules now have been filed with GAO and the Congress and are thus now effective under CRA. In our view, OIRA should have played a more proactive role in ensuring that agencies were both aware of the CRA filing requirements and were complying with them. One area of consistent difficulty in implementing CRA has been the failure of some agencies to delay the effective date of major rules for 60 days as required by section 801(a)(3)(A) of the act. Eight major rules have not permitted the required 60-day delay, including the Immigration and Naturalization Service’s major rule regarding the expedited removal of aliens. Also, this appears to be a continuing problem since one of the eight rules was issued in January 1998. We find agencies are not budgeting enough time into their regulatory timetable to allow for the delay and are misinterpreting the “good cause” exception to the 60-day delay period found in section 808(2). Section 808(2) states that, notwithstanding section 801, “any rule which an agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rule issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest” shall take effect at such time as the federal agency promulgating the rule determines. This language mirrors the exception in the Administrative Procedure Act (APA) to the requirement for notice and comment in rulemaking. 5 U.S.C. § 553(b)(3)(B). In our opinion, the “good cause” exception is only available if a notice of proposed rulemaking was not published and public comments were not received. Many agencies, following a notice of proposed rulemaking, have stated in the preamble to the final major rule that “good cause” existed for not providing the 60-day delay. Examples of reasons cited for the “good cause” exception include (1) that Congress was not in session and thus could not act on the rule, (2) that a delay would result in a loss of savings that the rule would produce, or (3) that there was a statutorily mandated effective date. The former administrator of OIRA disagreed with our interpretation of the “good cause” exception. She believed that our interpretation of the “good cause” exception would result in less public participation in rulemaking because agencies would forgo issuing a notice of proposed rulemaking and receipt of public comments to be able to invoke the CRA “good cause” exception. OIRA contends that the proper interpretation of “good cause” should be the standard employed for invoking section 553(d)(3) of the APA, “as otherwise provided by the agency for good cause found and published with the rule,” for avoiding the 30-day delay in a rule’s effective date required under the APA. Since CRA’s section 808(2) mirrors the language in section 553(b)(B), not section 553(d)(3), it is clear that the drafters intended the “good cause” exception to be invoked only when there has not been a notice of proposed rulemaking and comments received. One early question about implementation of CRA was whether Executive agencies or OIRA would attempt to avoid designating rules as major and thereby avoid GAO’s review and the 60-day delay in the effective date. While we are unaware of any rule that OIRA misclassified to avoid the major rule designation, the failure of agencies to identify some issuances as “rules” at all has meant that some major rules have not been identified. CRA contains a broad definition of “rule,” including more than the usual “notice and comment” rulemakings under the Administrative Procedure Act which are published in the Federal Register. “Rule” means the whole or part of an agency statement of general applicability and future effect designed to implement, interpret, or prescribe law or policy. “All too often, agencies have attempted to circumvent the notice and comment requirements of the Administrative Procedure Act by trying to give legal effect to general policy statements, guidelines, and agency policy and procedure manuals. Although agency interpretative rules, general statements of policy, guideline documents, and agency and procedure manuals may not be subject to the notice and comment provisions of section 553(c) of title 5, United States Code, these types of documents are covered under the congressional review provisions of the new chapter 8 of title 5.” On occasion, our Office has been asked whether certain agency action, issuance, or policy constitutes a “rule” under CRA such that it would not take effect unless submitted to our Office and the Congress in accordance with CRA. For example, in response to a request from the Chairman of the Subcommittee on Forests and Public Land Management, Senate Committee on Energy and Resources, we found that a memorandum issued by the Secretary of Agriculture in connection with the Emergency Salvage Timber Sale Program constituted a “rule” under CRA and should have been submitted to the Houses of Congress and GAO before it could become effective. Likewise, we found that the Tongass National Forest Land and Resource Management Plan issued by the United States Forest Service was a “rule” under CRA and should have been submitted for congressional review. OIRA stated that, if the plan was a rule, it would be a major rule. The Forest Service has in excess of 100 such plans promulgated or revised which are not treated as rules under CRA. Many of these may actually be major rules that should be subject to CRA filing and, if major rules, subject to the 60-day delay for congressional review. In testimony before the Senate Committee on Energy and Natural Resources and the House Committee on Resources regarding the Tongass Plan, the Administrator of OIRA stated that, as was the practice under the APA, each agency made its own determination of what constituted a rule under CRA and by implication, OIRA was not involved in these determinations. We believe that for CRA to achieve what the Congress intended, OIRA must assume a more active role in guiding or overseeing these types of agency decisions. Other than an initial memorandum following the enactment of CRA, we are unaware of any further OIRA guidance. Because each agency or commission issues many manuals, documents, and directives which could be considered “rules” and these items are not collected in a single document or repository such as the Federal Register, for informal rulemakings, it is difficult for our Office to ascertain if agencies are fully complying with the intent of CRA. Having another set of eyes reviewing agency actions, especially one which has desk officers who work on a daily basis with certain agencies, would be most helpful. We have attempted to work with Executive agencies to get more substantive information about the rules and to get such information supplied in a manner that would enable quick assimilation into our database. An expansion of our database could make it more useful not only to GAO for its use in supporting congressional oversight work, but directly to the Congress and to the public. Attached to this testimony is a copy of a questionnaire designed to obtain basic information about each rule covered by CRA. This questionnaire asks the agencies to report on such items as (1) whether the agency provided an opportunity for public participation, (2) whether the agency prepared a cost-benefit analysis or a risk assessment, (3) whether the rule was reviewed under Executive orders for federalism or takings implications, and (4) whether the rule was economically significant. Such a questionnaire would be prepared in a manner that facilitates incorporation into our database by electronic filing or by scanning. In developing and attempting to implement the use of the questionnaire, we consulted with Executive branch officials to insure that the requested information would not be unnecessarily burdensome. We circulated the questionnaire for comment to 20 agency officials with substantial involvement in the regulatory process, including officials from OIRA. The Administrator of OIRA submitted a response in her capacity as Chair of the Regulatory Working Group, consolidating comments from all the agencies represented in that group. It is the position of the group that the completion of this questionnaire for each of the 4,000 to 5,000 rules filed each year is too burdensome for the agencies concerned. The group points out that the majority of rules submitted each year are routine or administrative or are very narrowly focused regional, site-specific, or highly technical rules. We continue to believe that it would further the purpose of CRA for a database of all rules submitted to GAO to be available for review by Members of Congress and the public and to contain as much information as possible concerning the content and issuance of the rules. We believe that further talks with the Executive branch, led by OIRA, can be productive and that there may be alternative approaches, such as submitting one questionnaire for repetitive or routine rules. If a routine rule does not fit the information on the submitted questionnaire, a new questionnaire could be submitted for only that rule. For example, the Department of Transportation could submit one questionnaire covering the numerous air worthiness directives it issues yearly. If a certain action does not fit the overall questionnaire, a new one for only that rule would be submitted. We note that almost all agencies have devised their own forms for the submission of rules, some of which are as long or almost as extensive as the form we recommend. Additionally, some agencies prepare rather comprehensive narrative reports on nonmajor rules. We are unable to easily capture data contained in such narrative reports with the resources we have staffing this function now. The reports are systematically filed and the information contained in them essentially is lost. Our staff could, however, incorporate an electronic submission or scan a standardized report into our database and enable the data contained therein to be used in a meaningful manner. CRA gives the Congress an important tool to use in monitoring the regulatory process, and we believe that the effectiveness of that tool can be enhanced. Executive Order 12866 requires that OIRA, among other things, provide meaningful guidance and oversight so that each agency’s regulatory actions are consistent with applicable law. After almost 2 years’ experience in carrying out our responsibilities under the act, we can suggest four areas in which OIRA should exercise more leadership within the Executive branch regulatory community, consistent with the intent of the Executive Order, to enhance CRA’s effectiveness and its value to the Congress and the public. We believe that OIRA should: require standardized reporting in a GAO-prescribed format that can readily be incorporated into GAO’s database; establish a system to monitor compliance with the filing requirement on an ongoing basis; provide clarification on the “good cause” exception to the 60-day delay provision and oversee agency compliance during its Executive Order 12866 review; and provide clarifying guidance as to what is a rule that is subject to CRA and oversee the process of identifying such rules. Thank you, Mr. Chairman. This concludes my prepared remarks. I would be happy to answer any questions you may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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GAO discussed its experience in fulfilling its responsibilities under the Congressional Review Act (CRA). GAO noted that: (1) its primary role under the CRA is to provide Congress with a report on each major rule concerning GAO's assessment of the promulgating federal agency's compliance with the procedural steps required by various acts and Executive orders governing the regulatory process; (2) these include preparation of a cost-benefit analysis, when required, and compliance with the Regulatory Flexibility Act, the Unfunded Mandates Reform Act of 1995, the Administrative Procedure Act, the Paperwork Reduction Act, and Executive Order 12866; (3) GAO's report must be sent to the congressional committees of jurisdiction within 15 calendar days; (4) although the law is silent as to GAO's role relating to the nonmajor rules , GAO believes that basic information about the rules should be collected in a manner that can be of use to Congress and the public; (5) to do this, GAO has established an database that gathers basic information about the 15-20 rules GAO receives on the average each day; (6) GAO's database captures the title, agency, the Regulation Identification Number, the type of rule, the proposed effective date, the date published in the Federal Register, the congressional review trigger date, and any joint resolutions of disapproval that may be enacted; (7) GAO has recently made this database available, with limited research capabilities, on the Internet; (8) GAO conducted a review to determine whether all final rules covered by CRA and published in the Federal Register were filed with Congress and GAO; (9) as a result of GAO's compliance audit, 264 rules have been filed with GAO and Congress and are now effective under CRA; (10) one area of consistent difficulty in implementing CRA had been the failure of some agencies to delay the effective date of major rules for 60 days as required by the act; (11) one early question about implementation of CRA was whether executive agencies or the Office of Information and Regulatory Affairs (OIRA) would attempt to avoid designating rules as major and thereby avoid GAO's review and the 60-day delay in the effective date; and (12) while GAO is unaware of any rule that OIRA misclassified to avoid the major rule designation, the failure of agencies to identify some issuances as rules at all has meant that some major rules have not been identified.

Since the Social Security Act became law in 1935, workers have had the right to review their earnings records on file at SSA to ensure that they are correct. In 1988, SSA introduced the PEBES to better enable workers who requested such information to review their earnings records and obtain benefit estimates. According to SSA, less than 2 percent of workers who pay Social Security taxes request these statements each year. plans to have mailed statements automatically to more than 70 million workers. By providing these statements, SSA’s goals are to (1) better inform the public of benefits available under SSA’s programs, (2) assist workers in planning for their financial future, and (3) better ensure that Social Security earnings records are complete and accurate. Correcting earnings records benefits both SSA and the public because early identification and correction of errors in earnings records can reduce the time and cost required to correct them years later when an individual files for retirement benefits. Issuing the PEBES is a significant initiative for SSA. The projected cost of more than $80 million in fiscal year 2000 includes $56 million for production costs, such as printing and mailing the statement, and $24 million for personnel costs. SSA estimates that 608 staff-years will be required to handle the PEBES workload in fiscal year 2000: SSA staff are needed to prepare the statements, investigate discrepancies in workers’ earnings records, and respond to public inquiries. Since the PEBES was first developed, SSA has conducted several small-scale and national surveys to assess the general public’s reaction to receiving an unsolicited PEBES. In addition, SSA has conducted a series of focus groups to elicit the public’s and SSA employees’ opinion of the statement and what parts of it they did and did not understand. retirement at age 70. When SSA learned that many people were interested in the effect of early retirement on their benefits, SSA added an estimate for retirement at age 62. Overall public reaction to receiving an unsolicited PEBES has been consistently favorable. In a nationally representative survey conducted during a 1994 pilot test, the majority of respondents indicated they were glad to receive their statements. In addition, 95 percent of the respondents said the information provided was helpful to their families. Overall, older individuals reacted more favorably to receiving a PEBES than did younger individuals. In addition, SSA representatives who answer the toll-free telephone calls from the public have stated that most callers are pleased that they received a PEBES and say that the information is useful for financial planning. Although SSA has taken steps to improve the PEBES, we found that the current statement still provides too much information, which may overwhelm the reader, and presents the information in a way that undermines its usefulness. These weaknesses are attributable, in part, to the process SSA used to develop the PEBES. Additional information and expanded explanations have made the statement longer, but some explanations still confuse readers. Moreover, SSA has not tested for reader comprehension and has not collected detailed information from its front-line workers on the public’s response to the PEBES. explanations to understand complex information, the explanations should appear with the information. Easy-to-understand explanations: Readers need explanations of complex programs and benefits in the simplest and most straightforward language possible. In the 1996 PEBES, the message from the Commissioner of Social Security does not clearly explain why SSA is providing the statement. Although the message does include information on the statement’s contents and the need for individuals to review the earnings recorded by SSA, its presentation is uninviting, according to the design expert we consulted. More specifically, the type is too dense; the lines are too long; white space is lacking; and the key points are not highlighted. If the PEBES’ recipients do not read the Commissioner’s message, they may not understand why reviewing the statement is important. The message also attempts to reassure people that the Social Security program will be there when they need it with the following reference (from the 1996 PEBES) to the system’s solvency: The Social Security Board of Trustees projects that the system will continue to have adequate resources to pay benefits in full for more than 30 years. This means that there is time for the Congress to make changes needed to safeguard the program’s financial future. I am confident these actions will result in the continuation of the American public’s widespread support for Social Security. Some participants in SSA focus groups, however, thought the message suggested that the resources would not necessarily be there after 30 years. For example, one participant in a 1994 focus group reviewing a similar Commissioner’s message said, “. . . first thing I think about when I read the message is, is not going to be there for me.” current statement, some focus group participants and benefit experts suggested that SSA add an index or a table of contents to help readers navigate the statement. SSA has not used the best layout and design to help the reader identify the most important points and move easily from one section to the next. The organization of the statement is not clear at a glance. Readers cannot immediately grasp what the sections of the statement are, and in which order they should read them, according to the design expert with whom we consulted. The statement lacks effective use of features such as bulleting and highlighting that would make it more user friendly. In addition, the PEBES is disorganized: information does not appear where needed. The statement has a patchwork of explanations scattered throughout, causing readers to flip repeatedly from one page to another to find needed information. For example, page two begins by referring the reader to page four, and page three contains six references to information on other pages. Furthermore, to understand how the benefit estimates were developed and any limitations to these estimates, a PEBES recipient must read explanations spread over five pages. The statement’s spreading of benefit estimate explanations over several pages may result in individuals missing important information. This is especially true for people whose benefits are affected by special circumstances, which SSA does not take into consideration in developing PEBES benefit estimates. For example, the PEBES estimate is overstated for federal workers who are eligible for both the Civil Service Retirement System and Social Security benefits. For these workers, the law requires a reduction in their Social Security retirement or disability benefits according to a specific formula. In 1996, this reduction may be as much as $219 per month; however, PEBES’ benefit estimates do not reflect this reduction. The benefit estimate appears on page three; the explanation of the possible reduction does not appear until the bottom of page five. Without fully reviewing this additional information, a reader may not realize that the PEBES benefit estimate could be overstated. Because PEBES addresses complex programs and issues, explaining these points in simple, straightforward language is challenging. Although SSA made changes to improve the explanation of work credits, for example, many people still do not understand what these credits are, the relevance of the credits to their benefits, and how they are accumulated. The public also frequently asks questions about the PEBES’ explanation of family benefits. Family benefits are difficult to calculate and explain because the amount depends on several different factors, such as the age of the spouse and the spouse’s eligibility for benefits on his or her own work record. Informing the public about family benefits, however, is especially important: a 1995 SSA survey revealed that as much as 40 percent of the public is not aware of these benefits. A team of representatives from a cross section of SSA offices governed SSA’s decisions on the PEBES’ development, testing, and implementation. The team revised and expanded the statement in response to feedback on individual problems. The design expert we consulted observed that the current statement “appears to have been the result of too many authors, without a designated person to review the entire piece from the eyes of the readers. It seems to have developed over time, piecemeal . . . .” information collected does not provide sufficient detail for SSA to understand the problems people are having with the PEBES. Although the public and benefit experts agree that the current statement contains too much information, neither a standard benefit statement model exists in the public or private sector nor does a clear consensus on how best to present benefit information. The Canadian government chose to use a two-part document when it began sending out unsolicited benefit statements in 1985. The Canada Pension Plan’s one-page statement provides specific individual information, including the earnings record and benefit estimates. A separate brochure details the program explanations. The first time the Plan mails the statement, it sends both the one-page individual information and the detailed brochure; subsequent mailings contain only the single page with the individual information. Although some focus group participants and benefit experts prefer a two-part format, others believe that all information should remain in a single document, fearing that statement recipients will lose or might not read the separate explanations. SSA has twice tested the public’s reaction to receiving two separate documents. On the basis of a 1987 focus group test, SSA concluded that it needed to either redesign the explanatory brochure or incorporate the information into one document. SSA chose the latter approach. In a 1994 test, people indicated that they preferred receiving one document; however, the single document SSA used in the test had less information and a more readable format than the current PEBES. SSA, through the Government Printing Office, has awarded a 2-year contract for printing the fiscal years 1997 and 1998 statements. These statements will have the same format as the current PEBES with only a few wording changes. SSA is planning a more extensive redesign of the PEBES for the fiscal year 1999 mailings but only if it will save money on printing costs. By focusing on reduced printing costs as the main reason for redesigning the PEBES, SSA is overlooking the hidden costs of the statement’s existing weaknesses. For example, if people do not understand why they got the statement or have questions about information provided in the statement, they may call or visit SSA, creating more work for SSA staff. Furthermore, if the PEBES frustrates or confuses people, it could undermine public confidence in SSA and its programs. Our work suggests, and experts agree, that the PEBES’ value could be enhanced by several changes. Yet SSA’s redesign team is focusing on reducing printing costs without considering all of the factors that would ensure that PEBES is a cost-effective document. The PEBES initiative is an important step in better informing the public about SSA’s programs and benefits. To improve the statement, SSA can quickly make some basic changes. For example, SSA officials told us that, on the basis of our findings, they have revised the Commissioner’s message for the 1997 PEBES to make it shorter and less complex. More extensive revisions are needed, however, to ensure that the statement communicates effectively. SSA will need to start now to complete these changes before its 1999 redesign target date. The changes include improving the layout and design and simplifying certain explanations. These revisions will require time to collect data and to develop and test alternatives. SSA can help ensure that the changes target the most significant weaknesses by systematically obtaining more detailed feedback from front-line workers. SSA could also ensure that the changes clarify the statement by conducting formal comprehension tests with a sample of future PEBES recipients. In addition, we believe SSA should evaluate alternative formats for communicating the information presented in PEBES. For example, SSA could present the Commissioner’s message in a separate cover letter accompanying the statement, or SSA could consider a two-part option, similar to the approach of the Canada Pension Plan. To select the most cost-effective option, SSA needs to collect and assess additional cost information on options available and test different PEBES formats. Our work suggests that improving PEBES will demand attention from SSA’s senior leadership. For example, how best to balance the public’s need for information with the problems resulting from providing too much information are too difficult and complex to resolve without senior-level SSA involvement. Mr. Chairman, this concludes my formal remarks. I would be happy to answer any questions from you and other members of the Subcommittee. Thank you. For more information on this testimony, please call Diana S. Eisenstat, Associate Director, Income Security Issues, at (202) 512-5562 or Cynthia M. Fagnoni, Assistant Director, at (202) 512-7202. Other major contributors include Evaluators Kay Brown, Nora Perry, and Elizabeth Jones. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. 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GAO discussed the Social Security Administration's (SSA) Personal Earnings and Benefit Estimate Statement (PEBES). GAO noted that: (1) the public has reacted favorably to unsolicited PEBES, and SSA has improved the statement in response to public feedback; (2) the public generally feels that the statement is a valuable tool for retirement planning, but the statement does not clearly convey its purpose and related information on SSA programs and benefits; (3) PEBES weaknesses have resulted from its piecemeal development and the lack of testing for comprehension; (4) there is no consensus on the best model for PEBES; (5) SSA plans to redesign PEBES only if the redesign results in lower printing costs; (6) this approach fails to recognize the hidden costs arising from the need to answer public inquiries about statement information and the undermining of public confidence in SSA programs by the statement's poor design; (7) SSA needs to improve PEBES layout and design and simplify certain explanations, obtain more detailed feedback from its frontline workers, conduct comprehension tests, and consider alternative statement formats; and (8) SSA senior management attention is needed to ensure the success of the statement initiative by redesigning PEBES to present benefits information more effectively.

The federal government’s civilian workforce faces large losses over the next several years, primarily through retirements. Expected retirements in the SES, which generally represents the most senior and experienced segment of the workforce, are expected to be even higher than the governmentwide rates. In our January 2003 report, we estimated that more than half of the government’s 6,100 career SES members on board as of October 2000 will have left the service by October 2007. Estimates for SES attrition at 24 large agencies showed substantial variations in both the proportion that would be leaving and the effect of those losses on the gender, racial, and ethnic profile. We estimated that most of these agencies would lose at least half of their corps. The key source of replacements for the SES—the GS-15 and GS-14 workforce—also showed significant attrition governmentwide and at the 24 large agencies by fiscal year 2007. While this workforce is generally younger, and those who leave do so for somewhat different reasons than SES members, we estimate that almost half, 47 percent, of the GS-15s on board as of October 2000 will have left federal employment by October 2007 and about a third, 34 percent, of the GS-14s will have left. While past appointment trends may not continue, they do present a window into how the future might look. In developing our estimates of future diversity of the SES corps, we analyzed appointment trends for the federal government and at 24 large agencies to determine the gender, racial, and ethnic representation of the SES corps in 2007 if appointment trends that took place from fiscal years 1995 through 2000 continued. We found that, governmentwide, the only significant change in diversity by 2007 would be an increase in the number of white women, from 19.1 to 23.1 percent, and a corresponding decrease in white men, from 67.1 to 62.1 percent. The proportion of the SES represented by minorities would change very little, from 13.8 to 14.5 percent. Table 1 presents the results by gender, racial, and ethnic groups of our simulation of SES attrition and projection of SES appointments using recent trends. The table also shows that the racial and ethnic profile of those current SES members who will remain in the service through the 7- year period will be about the same as it was for all SES members in October 2000. This is because minorities are projected to be leaving at essentially the same rate overall as white members. Thus, any change in minority representation will be the result of new appointments to the SES. However, as the last columns of table 1 show, if recent appointment trends continue, the result of replacing over half of the SES will be a corps whose racial and ethnic profile changes very little. The outlook regarding gender diversity is somewhat different—while the percentage represented by SES white women is estimated to increase by 4 percentage points, the percentage of minority women is estimated to increase by .5 percentage point—from 4.5 to 5.0 percent. While white men are estimated to decrease by 5 percentage points, minority men are estimated to increase by .2 percentage point, from 9.3 to 9.5 percent. The results of our simulation of SES attrition and our projection of appointments to the SES over the 7-year period showed variation across the 24 Chief Financial Officers (CFO) Act agencies, as illustrated in table 2. However, as with the governmentwide numbers, agencies tend to increase the proportion of women in the SES, particularly white women, and decrease the proportion of white men. The proportion represented by minorities tended to change relatively little. Our estimates of SES attrition at individual agencies by gender, racial, and ethnic groups are likely to be less precise than for our overall SES estimates because of the smaller numbers involved. Nevertheless, the agency-specific numbers should be indicative of what agency profiles would look like on October 1, 2007, if recent appointment trends continue. The gender, racial, and ethnic profiles of the career SES at the 24 CFO Act agencies varied significantly on October 1, 2000. The representation of women ranged from 13.7 percent to 36.1 percent with half of the agencies having 27 percent or fewer women. For minority representation, rates varied even more and ranged from 3.1 percent to 35.6 percent with half of the agencies having less than 15 percent minorities in the SES. Our projection of what the SES would look like if recent appointment trends continued through October 1, 2007, showed variation, with 12 agencies having increased minority representation and 10 having less. While projected changes for women are often appreciable, with 16 agencies having gains of 4 percentage points or more and no decreases, projected minority representation changes in the SES at most of the CFO Act agencies are small, exceeding a 2 percentage point increase at only 6 agencies. At most agencies, the diversity picture for GS-15s and GS-14s is somewhat better than that for the SES. To ascertain what the gender, racial, and ethnic profile of the candidate pool for SES replacements would look like, we performed the same simulations and projections for GS-15s and GS-14s as we did for the SES. Over 80 percent of career SES appointments of federal employees come from the ranks of GS-15s. Similarly, over 90 percent of those promoted to GS-15 are from the GS-14 workforce. Table 3 presents the results of our analysis for GS-15s, and table 4 presents the results for GS-14s. The results show a somewhat lower proportion of this workforce will leave. Minority representation among those GS-15s who remain by 2007 will be about the same as it was at the beginning of fiscal year 2001, indicating that whites and minorities will leave at about the same rates. However, the proportion of minority GS-14s would increase somewhat (by 1.5 percentage points) and the proportion of both grades represented by white and minority women will also increase. Moreover, if recent promotion trends to GS-15 and GS-14 continue, marginal gains by almost all of the racial and ethnic groups would result. Our simulation shows that significant numbers of current minority GS-15s and GS-14s will be employed through fiscal year 2007, and coupled with our projection of promotions, shows there will be substantial numbers of minorities at both the GS-15 (8,957) and GS-14 (15,672) levels, meaning that a sufficient number of minority candidates for appointment to the SES should be available. With respect to gender, the percentage of white women at GS-15 is projected to increase by 2.6 percentage points to 22 percent and at GS-14 by 0.9 percentage point to 23.5 percent. The proportions of minority women will increase by 0.9 percentage point to 6.5 percent for GS-15s and 0.5 percentage point to 8.1 percent for GS-14s, while those for minority men will increase 0.8 percentage point to 10.8 percent for GS-15s and 0.5 percentage point to 10.7 percent for GS-14s. At 60.6 percent, white men will represent 4.2 percentage points less of GS-15s and, at 57.5 percent, 2.1 percentage points less of GS-14s than in fiscal year 2001. Again, our estimates for the GS-15 and GS-14 populations at individual agencies are likely to be less precise than our governmentwide figures because of the smaller numbers involved but should be indicative of what agency profiles would look like in October 2007. During fiscal years 2001 through 2007, the wave of near-term retirements and normal attrition for other reasons presents the federal government with the challenge and opportunity to replace over half of its career SES corps. The response to this challenge and opportunity will have enormous implications for the government’s ability to transform itself to carry out its current and future responsibilities rather than simply to recreate the existing organizational structures. With respect to the challenge, the federal government and governments around the world are faced with losses that have a direct impact on leadership continuity, institutional knowledge, and expertise. Focusing on succession planning, especially at the senior levels, and developing strategies that will help ensure that the SES corps reflects diversity will be important. We have gained insights about selected succession planning and management practices used by other countries that may be instrumental for U.S. agencies as they adopt succession planning and management strategies. We found that leading organizations engage in broad, integrated succession planning and management efforts that focus on strengthening both current and future organizational capacity. As part of this approach, these organizations identify, develop, and select their people to ensure an ongoing supply of successors who are the right people, with the right skills, at the right time for leadership and other key positions. Succession planning is also tied to the federal government’s opportunity to change the diversity of the SES corps through new appointments. Leading organizations recognize that diversity can be an organizational strength that contributes to achieving results. By incorporating diversity program activities and objectives into agency succession planning, agencies can help ensure that the SES corps is staffed with the best and brightest talent available regardless of gender, race, or ethnicity. As stated earlier, the succession pool of candidates from the GS-15 and GS-14 levels should have significant numbers of minority candidates to fill new appointments to the SES. It will be important to identify and nurture talent from this workforce and other levels in agencies early in their careers. Development programs that identify and prepare individuals for increased leadership and managerial responsibilities will be critical in allowing these individuals to successfully compete for admission to the candidate pool for the next level in the organization. Succession planning and management is starting to receive increased attention from the Office of Management and Budget (OMB) and OPM, and we have also seen a positive response from these leadership agencies in developing and implementing programs that promote diversity. In commenting on our January 2003 report, OPM concurred with our findings on SES attrition and diversity and said it welcomed the attention the report brings to a critical opportunity facing the federal workforce and federal hiring officials. The Director said that increasing diversity in the executive ranks continues to be a top priority for OPM and that the agency has been proactive in its efforts to help federal agencies obtain and retain a diverse workforce, particularly in the senior ranks.Both OPM and EEOC said that our analysis was an accurate reflection of the likely future composition of the career SES if recent patterns of selection and attrition continue. EEOC expressed concern about the trends suggested by our analyses to the extent that they may point to the presence of arbitrary barriers that limit qualified members of any group from advancing into the SES. EEOC also stated that in the years ahead, federal agencies will need to continue their vigilance in ensuring a level playing field for all federal workers and should explore proactive strategies, such as succession planning and SES development and mentoring programs for midlevel employees, to ensure a diverse group of highly qualified candidates for SES positions. Other federal agencies told us that they also have leadership development programs in place or are establishing agencywide human capital planning and executive succession programs, which include diversity as an element. They also told us that holding executives accountable for building a diverse workforce was an element in their performance evaluation for agency executives. Continued leadership from these agencies, coupled with a strong commitment from agency management, will go a long way toward ensuring the diversity of senior leadership. Chairwoman Davis and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any questions you may have. For further information, please contact George H. Stalcup on (202) 512- 9490 or at stalcupg@gao.gov. Individuals making key contributions to this testimony include Steven Berke, Anthony Lofaro, Belva Martin, and Walter Reed. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The federal government faces large losses in its Senior Executive Service (SES), primarily through retirement but also because of other normal attrition. This presents the government with substantial challenges to ensuring an able management cadre and also provides opportunities to affect the composition of the SES. In a January 2003 report, GAO-03-34 , GAO estimated the number of SES members who would actually leave service through fiscal year 2007 and reviewed the implications for diversity, as defined by gender, race, and ethnicity of the estimated losses. Specifically, GAO estimated by gender, race, and ethnicity the number of members of the career SES who will leave government service from October 1, 2000, through September 30, 2007, and what the profile of the SES will be if appointment trends do not change. GAO made the same estimates for the pool of GS-15s and GS-14s, from whose ranks the vast majority of replacements for departing SES members come, to ascertain the likely composition of that pool. More than half of the 6,100 career SES members employed on October 1, 2000, will have left service by October 1, 2007. Using recent SES appointment trends, the only significant changes in diversity would be an increase in the number of white women and an essentially equal decrease in white men. The percentage of GS-15s and GS-14s projected to leave would be lower (47 percent and 34 percent, respectively), and we project that the number of minorities still in the GS-15 and GS-14 workforce would provide agencies sufficient opportunity to select minority members for the SES. Estimates showed substantial variation in the proportion of SES minorities leaving between 24 large agencies and in the effect on those agencies' gender, racial, and ethnic profiles. Minority representation at 10 agencies would decrease and at 12 would increase. Agencies have an opportunity to affect SES replacement trends by developing succession strategies that help achieve a diverse workforce. Along with constructive agency leadership, these strategies could generate a pool of well-prepared women and minorities to boost the diversity of the SES ranks.

In 1998, we reported that difficulties in comparing EPA’s fiscal year 1999 and 1998 budget justifications arose because the 1999 budget justification was organized according to the agency’s strategic goals and objectives, whereas the 1998 justification was organized according to EPA’s program offices and components. Funds for EPA’s Science and Technology account were requested throughout the fiscal year 1999 budget justification for all 10 of the agency’s strategic goals and for 25 of its 45 strategic objectives. As shown in table 1, two strategic goals—Sound Science and Clean Air—accounted for 71 percent of the funds requested for Science and Technology. In its fiscal year 1999 budget justification, EPA did not show how the funds requested for each goal and objective would be allocated among its program offices or components. To be able to compare EPA’s requested fiscal year 1999 funds for Science and Technology to the previous fiscal year’s enacted funds, EPA would have had to maintain financial records in two different formats—by program components and by strategic goals and objectives—and to develop crosswalks to link information between the two. EPA maintained these two formats for some of the Science and Technology funds but not for others. Guidance from the Office of Management and Budget (OMB) does not require agencies to develop or provide crosswalks in their justifications when a budget format changes. However, OMB examiners or congressional committee staff may request crosswalks during their analyses of a budget request. Two of EPA’s program offices—Research and Development and Air and Radiation—accounted for over 97 percent of the Science and Technology funds that were requested for fiscal year 1999. The offices maintained their financial records differently. The Office of Research and Development maintained the enacted budget for fiscal year 1998 by program components (the old format) and also by EPA’s strategic goals and objectives (the new format). With these two formats of financial data, the Office of Research and Development could readily crosswalk, or provide links, to help compare the 1998 enacted funds, organized by program components, to the fiscal year 1999 budget justification, organized according to EPA’s strategic goals and objectives. In contrast, the Office of Air and Radiation maintained its financial records for fiscal year 1998 under EPA’s new strategic goals and objectives format but did not also maintain this information under the old format. Therefore, the Office of Air and Radiation could only estimate how the fiscal year 1998 enacted funds would have been allocated under the old format. For example, EPA estimated that the Office of Air and Radiation’s program component for radiation had an enacted fiscal year 1998 budget of $4.6 million. While the activities of this program component continued in fiscal year 1999, they were subsumed in the presentation of the budget for EPA’s strategic goals and objectives. Therefore, because the radiation program could not be readily identified in the fiscal year 1999 budget justification, congressional decisionmakers could not easily compare funds for it with the amount that had been enacted for fiscal year 1998. At our request, the Office of Air and Radiation estimated its enacted budget for fiscal year 1998 by program components and then developed a crosswalk to link those amounts with EPA’s strategic goals and objectives. The remaining 3 percent of the requested funds for Science and Technology is administered by the Office of Water; the Office of Administration and Resources Management; the Office of Prevention, Pesticides, and Toxic Substances; and the Office of Enforcement and Compliance Assurance. Two of these offices—the Office of Prevention, Pesticides, and Toxic Substances and the Office of Enforcement and Compliance Assurance—did not format financial information by program components. These offices estimated how the 1998 enacted funds would be classified under their various program components. For fiscal year 2000, EPA made several changes to improve the clarity of its budget justification. According to EPA officials, they planned to provide tables for each goal and objective to show the amounts of funds requested for key programs, starting with the agency’s fiscal year 2000 budget justification. The justification for fiscal year 2000 does contain additional information, in the form of tables for each objective, that details some of the requested amounts by key programs. For example, under the objective Research for Human Health Risk, part of the Sound Science goal, the $56 million requested for the objective is divided into two key programs: Human Health Research and Endocrine Disruptor Research. According to EPA officials, they did not plan to identify in the fiscal year 2000 budget justification the program offices that would be administering the requested funds. However, they intended to make available backup information to show the program offices that would be administering the requested funds. Such information is available for the fiscal year 2000 budget request and was provided to this Committee. According to EPA officials and an EPA draft policy on budget execution, the agency’s Planning, Budgeting, Analysis, and Accountability System would record budget data by goals, objectives, subobjectives, program offices, and program components. EPA expected that this system would be fully implemented on October 1, 1998. According to EPA officials, the new Planning, Budgeting, Analysis, and Accountability System was implemented on this date; accordingly, EPA can provide information showing how the agency’s requested funds would be allocated according to any combination of goals, objectives, subobjectives, program offices, and key programs. EPA also planned to submit future budget justifications in the format of its strategic goals and objectives, as it had done for fiscal year 1999. That way, the formats for fiscal year 2000 and beyond would have been similar to those for the fiscal year 1999 justification, facilitating comparisons in future years. According to EPA officials, the strategic goals and objectives in EPA’s fiscal year 2000 justification for Science and Technology would be the same as those in its fiscal year 1999 justification. However, beginning in fiscal year 1999, the agency has begun to reassess its strategic goals and objectives, as required by the Government Performance and Results Act. This assessment was meant to involve EPA’s working with state governments, tribal organizations, and congressional committees to evaluate its goals and objectives to determine if any of them should be modified. Upon completion of this assessment, if any of EPA’s goals or objectives change, the structure of the agency’s budget justification would change correspondingly. Changes to the strategic goals and objectives in the budget justifications could also require crosswalks and additional information to enable consistent year-to-year comparisons. EPA did maintain, as planned, the strategic goals and objectives format for its fiscal year 2000 budget justification. However, for the objectives that rely on Science and Technology funds, EPA made several changes without explanations or documentation to link the changes to the fiscal year 1999 budget justification. EPA (1) acknowledged that funds from one objective were allocated to several other objectives but did not identify the objectives or amounts, (2) did not identify funds in Science and Technology amounts that were transferred from Hazardous Substances Superfund, and (3) made other changes to the number or wording of objectives that rely on Science and Technology funds. In the fiscal year 1999 budget justification, under the strategic goal Sound Science, Improved Understanding of Environmental Risk, and Greater Innovation to Address Environmental Problems, EPA requested $86.6 million for the fifth objective: Enable Research on Innovative Approaches to Current and Future Environmental Problems; and the 1998 fiscal year enacted amount was listed as $85.0 million. In the fiscal year 2000 budget justification, EPA marked this objective as “Not in Use.” The justification stated that the fiscal year 1999 request included the amounts for operating expenses and working capital for the Office of Research and Development under the same objective in the Sound Science goal. In the fiscal year 2000 budget justification, EPA allocated the amounts requested for this objective among the other goals and objectives to more properly reflect costs of the agency’s objectives. However, the fiscal year 2000 justification did not identify the specific objectives for either the $85.0 million enacted for fiscal year 1998 nor the $86.6 million requested for fiscal year 1999. The allocation of funds was not specifically identified in the justification because EPA does not prepare crosswalks unless asked to by OMB or congressional committees. Therefore, a clear comparison of 1999 and 2000 budget justifications cannot be made. Another aspect that made year-to-year comparisons difficult was EPA’s treatment of funds transferred to Science and Technology from the agency’s Superfund account. In the fiscal year 2000 justification, the Science and Technology amounts shown as enacted for fiscal year 1999 include $40 million transferred from the Hazardous Substances Superfund. In contrast, the requested amounts for fiscal year 2000 do not include the transfer from the Superfund. As a result, amounts enacted for fiscal year 1999 cannot be accurately compared to the amounts requested for fiscal year 2000. This discrepancy is particularly evident in the objective Reduce or Control Risks to Human Health, under the goal Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency Response. The amounts for Science and Technology as shown in the budget justification for the objective are shown in table 2. The $49.8 million shown as enacted for fiscal year 1999 includes a significant amount of the $40 million transferred from the Superfund account, according to an EPA official. However, because the specific amount is not shown, an objective-by-objective comparison of the Science and Technology budget authority for fiscal years 1999 and 2000 cannot be accurately made, and it appears that EPA is requesting a significant decrease for this objective. An EPA official stated that the $40 million was not separately identified because the congressional guidance on transferring the funds did not specifically state which objectives these funds were to support. In the fiscal year 1999 budget justification, the strategic goal Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency Response had three objectives: (1) Reduce or Control Risks to Human Health, (2) Prevent Releases by Proper Facility Management, and (3) Respond to All Known Emergencies. In the fiscal year 1999 budget request, EPA indicated $6.3 million was enacted for Prevent Releases by Proper Facility Management in fiscal year 1998 and requested $6.6 million for fiscal year 1999. EPA indicated $1.6 million was enacted for Respond to All Known Emergencies in fiscal year 1998 and requested $1.6 for fiscal year 1999. The fiscal year 2000 budget justification omits these two—the second and third objectives and does not indicate where the funds previously directed to those objectives appear. Therefore, a clear comparison of budget requests year to year cannot be made. In the fiscal year 2000 budget justification, EPA added the second objective—Prevent, Reduce and Respond to Releases, Spills, Accidents, and Emergencies—to the strategic goal Better Waste Management, Restoration of Contaminated Waste Sites, and Emergency Response. EPA indicated that $8.8 million had been enacted for this objective in fiscal year 1999 and requested $9.4 million for this objective for fiscal year 2000. EPA did not identify which objectives in the fiscal year 1999 budget included the enacted $8.8 million and therefore a comparison to the prior budget justification was difficult. The other changes to the objectives were made as a result of the program offices’ reassessment of and modifications to subobjectives, which in turn led to changes in the agency’s objectives. While we do not question EPA’s revisions of its goals or objectives, the absence of a crosswalk or explanation does not enable a clear comparison of budget requests year to year. Mr. Chairman, this concludes my prepared statement. I will be pleased to respond to any questions that you or the Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO discussed the Environmental Protection Agency's (EPA) budget justification for its Science and Technology account, and changes among the justifications for fiscal years (FY) 1998, 1999, and 2000, focusing on: (1) difficulties experienced in comparing EPA's Science and Technology budget justification for FY 1999 with those of previous years; and (2) actions that EPA planned and implemented in order to improve the clarity and comparability of the FY 2000 justification, and items that need further clarification. GAO noted that: (1) EPA's budget justification for FY 1999 could not be readily compared to amounts requested or enacted for FY 1998 and prior years because the justification did not show how the budget would be distributed among program offices or program components--information needed to link to the prior years' justifications; (2) the Office of Management and Budget does not require EPA to provide information to compare the justifications when the format changes; (3) to facilitate such comparisons, agency officials provided supplemental information to congressional committees; (4) because EPA did not maintain financial records by both program components and strategic goals and objectives for all enacted Science and Technology funds for FY 1998, it could not readily provide information for all amounts; (5) at GAO's request, EPA estimated the 1998 enacted amounts so that the 1998 budget could be compared with the FY 1999 request; (6) EPA implemented several changes to its FY 2000 justification to solve problems experienced in comparing the 1998 and 1999 budget justifications; (7) to improve the clarity of its budget justification for FY 2000, EPA included tables that detail, for each objective, how requested amounts are allocated among key programs; (8) backup information is also available that shows the program offices that will be administering the requested funds; (9) the agency also implemented a new accounting system that records budget data by goals and objectives, which enhances reporting financial data by goals and objectives; (10) while the budget justification followed the basic format reflecting the agency's strategic goals and objectives, EPA made changes to the objectives without explanations or documentation to link the changes to the FY 1999 budget justification; (11) for example, funds were allocated from one objective to other objectives without identifying the objectives or amounts, funds that included money transferred from another account were shown as Science and Technology funds, and changes were made to the number or wording of objectives without explanations; and (12) as a result, the FY 2000 budget justification cannot be completely compared with the FY 1999 justification without supplemental information.

Early childhood is a key period of development in a child’s life and an emphasized age group for which services are likely to have long-term benefits. Recent research has underscored the need to focus on this period to improve children’s intellectual development, language development, and school readiness. Early childhood programs serve children from infancy through age 5. The range of services includes education and child development, child care, referral for health care or social services, and speech or hearing assessment as well as many other kinds of services or activities. $4 billion), administered by HHS, and Special Education programs (approximately $1 billion), administered by Education. Head Start provides education and developmental services to young children, and the Special Education-Preschool Grants and Infants and Families program provides preschool education and services to young children with disabilities. Although these programs target different populations, use different eligibility criteria, and provide a different mix of services to children and families, there are many similarities in the services they provide. Figure 1 illustrates the federal agencies responsible for federal early childhood funding. Early childhood programs were included in the list of more than 30 programs our governmentwide performance and accountability report cited to illustrate the problem of fragmentation and program overlap.Virtually all the results that the government strives to achieve require the concerted and coordinated efforts of two or more agencies. However, mission fragmentation and program overlap are widespread, and programs are not always well coordinated. This wastes scarce funds, frustrates taxpayers, and limits overall program effectiveness. The Results Act is intended to improve the management of federal programs by shifting the focus of decision-making and accountability from the number of grants and inspection made to the results of federal programs. The act requires executive agencies, in consultation with the Congress and other stakeholders, to prepare strategic plans that include mission statements and goals. Each strategic plan covers a period of at least 5 years forward from the fiscal year in which the plan is submitted. It must include the following six key elements: a comprehensive mission statement covering the major functions and operations of the agency, a description of general goals and objectives for the major functions and operations of the agency, a discussion of how these goals and objectives will be achieved and the resources that will be needed, a description of the relationship between performance goals in the annual performance plan and general goals and objectives in the strategic plan, a discussion of key factors external to the agency that could affect significantly the achievement of the general goals and objectives, and a description of program evaluations used to develop the plan and a schedule for future evaluations. describe the means the agency will use to verify and validate its performance data. The act also requires that each agency report annually on the extent to which it is meeting its annual performance goals and the actions needed to achieve or modify goals that have not been met. The first report, due by March 31, 2000, will describe the agencies’ fiscal year 1999 performance. The Results Act provides a valuable tool to address mission fragmentation and program overlap. The act’s emphasis on results implies that federal programs contributing to the same or similar outcomes are expected to be closely coordinated, consolidated, or streamlined, as appropriate, to ensure that goals are consistent and that program efforts are mutually reinforcing. As noted in OMB guidance and in our recent reports on the act, agencies should identify multiple programs within or outside the agency that contribute to the same or similar goals and describe their efforts to coordinate. Just as importantly, the Results Act’s requirement that agencies define their mission and desired outcomes, measure performance, and use performance information provides multiple opportunities for the Congress to intervene in ways that could address mission fragmentation. As missions and desired outcomes are determined, instances of fragmentation and overlap can be identified and appropriate responses can be defined. For example, by emphasizing the intended outcomes of related federal programs, the plans might allow identification of legislative changes needed to clarify congressional intent and expectations or to address changing conditions. As performance measures are developed, the extent to which agency goals are complementary and the need for common performance measures to allow for crossagency evaluations can be considered. For example, common measures of outcomes from job training programs could permit comparisons of programs’ results and the tools used to achieve those results. As continued budget pressures prompt decisionmakers to weigh trade-offs inherent in resource allocation and restructuring decisions, the Results Act can provide the framework to integrate and compare the performance of related programs to better inform choices among competing budgetary claims. The outcome of using the Results Act in these ways might be consolidation that would reduce the number of multiple programs, but it might also be a streamlining of program delivery or improved coordination among existing programs. Where multiple programs remain, coordination and streamlining would be especially important. Multiple programs might be appropriate because a certain amount of redundancy in providing services and targeting recipients is understandable and can be beneficial if it occurs by design as part of a management strategy. Such a strategy might be chosen, for example, because it fosters competition, provides better service delivery to customer groups, or provides emergency backup. Education and HHS’s ACF—the two agencies that are responsible for the majority of early childhood program funds—addressed early childhood programs in their strategic and 1999 performance plans. Although both agencies’ plans generally addressed the required elements for strategic and performance plans, Education’s plans provided more detailed information about performance measures and coordination strategies. The agencies in their 2000 plans similarly addressed the required elements for performance plans. However, strategies and activities that relate to coordination were not well defined. Although agencies state that some coordination occurs, they have not yet fully described how they will coordinate their efforts. The Education plan provided a more detailed description of coordination strategies and activities for early childhood programs than the ACF plan, including some performance measures that may cut across programs. The ACF plan described in general terms the agency’s plans to coordinate with external and internal programs dealing with early childhood goals. Yet the information presented in the plans did not provide the level of detail, definition, and identification of complementary measures that would facilitate comparisons of early childhood programs. research on early brain development reveals that if some learning experiences are not introduced to children at an early age, the children will find learning more difficult later; children who enter school ready to learn are more likely to achieve high standards than children who are inadequately prepared; and high-quality preschool and child care are integral in preparing children adequately for school. Early childhood issues were discussed in the plan’s goal to “build a solid foundation for learning for all children” and in one objective and two performance indicators (see table 1). The 1999 performance plan, Education’s first performance plan, followed from the strategic plan. It clearly identified programs contributing to Education’s early childhood objective and set individual performance goals for each of its programs. Paralleling the strategic plan, the performance plan specified the core strategies Education intended to use to achieve its early childhood goal and objective. Among these were interagency coordination, particularly with HHS’s Head Start program. According to Education’s strategic plan, this coordination was intended to ensure that children’s needs are met and that the burden on families and schools working with multiple providers is reduced. The performance plan also said that Education would work with HHS and other organizations to incorporate some common indicators of young children’s school readiness into their programs. It would also work with HHS more closely to align indicators of progress and quality between HHS’s Head Start program and its Even Start Family Literacy program—which has as part of its goal the integration of early childhood education, adult literacy or adult basic education, and parenting education. other federal agencies enables it to better serve program participants and reduce inefficiencies in service delivery. We said that although this first plan included a great deal of valuable information, it did not provide sufficient details, such as a more complete picture of intended performance across the department, a fuller portrayal of how its strategies and resources would help achieve the plan’s performance goals, and better identification of significant data limitations and their implications for assessing the achievement of performance goals. These observations apply to the early childhood programs as well. Without this additional detail, policymakers are limited in their ability to make decisions about programs and resource allocation within the department and across agencies. Education’s 2000 performance plan continues to demonstrate the department’s commitment to the coordination of its early childhood programs. Like the 1999 performance plan, the sections on early childhood programs clearly identified programs contributing to its childhood program objectives. It also contained new material highlighting the importance of the coordination of early childhood programs as a crosscutting issue, particularly with HHS. To facilitate collaboration, the department added a strategy to work with the states to encourage interagency agreements at the state level. It also added using the Federal Interagency Coordinating Council to coordinate strategies for children with disabilities and their families. At the same time, the department still needs to better define its objectives and performance measures for crosscutting issues. Unless the purpose of coordination activities is clearly defined and results in measurable outcomes, it will be difficult to make progress in the coordination of programs across agencies. development, safety, and well-being of children and youth”—and three objectives (see table 2). The ACF plan, however, did not always give a clear picture of intended performance of its programs and often failed to identify the strategies the agency would use to achieve its performance goals. ACF programs that contribute to each early childhood objective were identified, and several of these programs had individual performance goals. However, without a clear picture of intended program goals and performance measures for crosscutting early childhood programs, it will be difficult to compare programs across agencies and assess the federal government’s overall efficacy in fostering early childhood development. and external stakeholders in this area. However, it did not define how this coordination will be accomplished or the means by which the crosscutting results will be measured. Agency officials are able to describe numerous activities that demonstrate collaboration within the agency and with Education. The absence of that discussion in the plan, however, limits the value the Results Act could have to both improving agency management and assisting the Congress in its oversight role. Progress in coordinating crosscutting programs is still in its infancy, although agencies are recognizing its importance. Agency performance plans provide the building blocks for recognizing crosscutting efforts. Because of the iterative nature of performance-based management, however, more than one cycle of performance plans will probably be required in the difficult process of resolving program fragmentation and overlap. Mr. Chairman, this concludes my prepared statement. We would be happy to answer any questions that you or Members of the Subcommittee may have. Government Management: Addressing High Risks and Improving Performance and Accountability (GAO/T-OCG-99-23, Feb. 10, 1999). Head Start: Challenges Faced in Demonstrating Program Results and Responding to Societal Changes (GAO/T-HEHS-98-183, June 9, 1998). The Results Act: Observations on the Department of Education’s Fiscal Year 1999 Annual Performance Plan (GAO/HEHS-98-172R, June 8, 1998). The Results Act: An Evaluator’s Guide to Assessing Agency Annual Performance Plans (GAO/GGD-10.1.20, Apr. 1, 1998). Managing for Results: Observations on Agencies’ Strategic Plans (GAO/T-GGD-98-66, Feb. 12, 1998). Managing for Results: Agencies’ Annual Performance Plans Can Help Address Strategic Planning Challenges (GAO/GGD-98-44, Jan. 30, 1998). Child Care: Federal Funding for Fiscal Year 1997 (GAO/HEHS-98-70R, Jan. 23, 1998). Federal Education Funding: Multiple Programs and Lack of Data Raise Efficiency and Effectiveness Concerns (GAO/T-HEHS-98-46, Nov. 6, 1997). At-Risk and Delinquent Youth: Multiple Programs Lack Coordinated Federal Effort (GAO/T-HEHS-98-38, Nov. 5, 1997). Managing for Results: Using the Results Act to Address Mission Fragmentation and Program Overlap (GAO/AIMD-97-146, Aug. 29, 1997). The Results Act: Observations on the Department of Education’s June 1997 Draft Strategic Plan (GAO/HEHS-97-176R, July 18, 1997). The Government Performance and Results Act: 1997 Governmentwide Implementation Will Be Uneven (GAO/GGD-97-109, June 2, 1997). Early Childhood Programs: Multiple Programs and Overlapping Target Groups (GAO/HEHS-95-4FS, Oct. 31, 1994). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO discussed how Congress can use the Government Performance and Results Act to facilitate agency performance plans to oversee early childhood programs, focusing on: (1) how the Results Act can assist in management and congressional oversight, especially in areas where there are multiple programs; (2) how the Departments of Education and Health and Human Services (HHS)--which together administer more than half of the federal early childhood program funds--addressed early childhood programs in their strategic and fiscal year 1999 and 2000 performance plans and the extent to which recent plans show progress in coordinating early childhood programs. GAO noted that: (1) Congress can use the Results Act to improve its oversight of crosscutting issues because the act requires agencies to develop strategic and annual performance plans that clearly specify goals, objectives, and measures for their programs; (2) the Office of Management and Budget has issued guidance saying that for crosscutting issues, agencies should describe efforts to coordinate federal programs contributing to the same or similar outcomes so that goals are consistent and program efforts are mutually reinforcing; (3) when GAO looked at the Education and HHS plans, it found that the plans are not living up to their potential as expected from the Results Act; (4) more specifically, while the fiscal year 1999 and 2000 plans to some extent addressed coordination, the departments have not yet described in detail how they will coordinate or consolidate their efforts; and (5) therefore, the potential for addressing fragmentation and duplication has not been realized, and GAO cannot assess whether the agencies are effectively working together on crosscutting issues.

We found that Indian Affairs does not have complete and accurate information on safety and health conditions at all BIE schools because of key weaknesses in its inspection program. In particular, Indian Affairs does not inspect all BIE schools annually as required by Indian Affairs’ policy, limiting information on school safety and health. We found that 69 out of 180 BIE school locations were not inspected in fiscal year 2015, an increase from 55 locations in fiscal year 2012 (see fig. 2). Further, we determined that 54 school locations received no inspections during the past 4 fiscal years. At the regional level, Indian Affairs did not conduct any annual school safety and health inspections in 4 of BIA’s 10 regions with school facility responsibilities—the Northwest, Southern Plains, Southwest, and Western regions—in fiscal year 2015, accounting for 52 of the 180 school locations (see fig. 3). Further, the same four regions did not conduct any school inspections during the previous 3 fiscal years. In the Western region, we found three schools that had not been inspected since fiscal year 2008 and three more that had not been inspected since fiscal year 2009. Indian Affairs’ safety office considers the lack of inspections a key risk to its safety and health program. BIA regional safety officers that we spoke with cited three key factors affecting their ability to conduct required annual safety and health inspections: (1) extended vacancies among BIA regional safety staff, (2) uneven workload distribution among BIA regions, and (3) limited travel budgets. Officials told us that one BIA region’s only safety position was vacant for about 10 years due to funding constraints. As an example of uneven workload distribution, one BIA region had two schools with one safety inspector position, while another region had 32 schools with one safety inspector position. Currently, Indian Affairs has not taken actions to ensure all schools are annually inspected. Without conducting annual inspections at all school locations, Indian Affairs does not have complete information on the frequency and severity of safety and health deficiencies at all BIE school locations and cannot ensure these facilities are safe for students and staff and currently meet safety and health requirements. We also found that Indian Affairs does not have complete and accurate information for the two-thirds of schools that it did inspect in fiscal year 2015 because it has not provided BIA inspectors with updated and comprehensive inspection guidance and tools. In particular, we found that Indian Affairs’ inspection guidance lacks comprehensive procedures on how inspections should be conducted, which Indian Affairs’ safety office acknowledged. For example, BIA’s Safety and Health Handbook—last updated in 2004—provides an overview of the safety and health inspection program but does not specify the steps inspectors should take to conduct an inspection. Further, according to some regional safety staff, Indian Affairs does not compile and provide inspectors with a reference guide for all relevant current safety and health standards. At the same time, BIA inspectors use inconsistent inspection practices, which may limit the completeness and accuracy of Indian Affairs’ information on school safety and health. For example, at one school we visited, school officials told us that the regional safety inspector conducted an inspection from his car and did not inspect the interior of the school’s facilities, which include 34 buildings. The inspector’s report comprised a single page and identified no deficiencies inside buildings. Concerned about the lack of completeness of the inspection, school officials said they arranged with the Indian Health Service (IHS) within the Department of Health and Human Services to inspect their facilities. IHS identified multiple serious safety and health problems, including electrical shock hazards, emergency lighting and fire alarms that did not work, and fire doors that were difficult to open or close. Currently, Indian Affairs does not systematically evaluate the thoroughness of school safety and health inspections and monitor the extent to which inspection procedures vary within and across regions. According to federal internal control standards, internal control monitoring should be ongoing and assess program performance, among other aspects of an agency’s operations. Without monitoring whether safety inspectors across BIA regions are consistently following inspection procedures and guidance, inspections in different regions may continue to vary in completeness and miss important safety and health deficiencies at schools that could pose dangers to students and staff. To support the collection of complete and accurate safety and health information on the condition of BIE school facilities nationally, we recommended that Interior (1) ensure all BIE schools are annually inspected for safety and health, as required by its policy, and that inspection information is complete and accurate and (2) revise its inspection guidance and tools, require that regional safety inspectors use them, and monitor safety inspectors’ use of procedures and tools across regions to ensure they are consistently adopted. Interior agreed with these recommendations. We also found that Indian Affairs is not providing schools with needed support in addressing deficiencies or consistently monitoring whether they have established safety committees, which are required by Indian Affairs. In particular, according to Indian Affairs information, one-third or less of the 113 schools inspected in fiscal year 2014 had abatement plans in place, as of June 2015. Interior requires that schools put in place such plans for any deficiencies inspectors identify. Because such plans are required to include time frames, steps, and priorities for abatement, they are an initial step in demonstrating how schools will address deficiencies identified in both annual safety and health and boiler inspection reports. Among the 16 schools we visited, several schools had not abated high- risk deficiencies within the time frames required by Indian Affairs. Indian Affairs requires schools to abate high-risk deficiencies within 1 to 15 days, but we found that inspections of some schools identified serious unabated deficiencies that repeated from one year to the next year. For example, we reviewed inspection documents for two schools and found numerous examples of serious “repeat” deficiencies—those that were identified in the prior year’s inspection and should have been corrected soon afterward but were not. One school’s report identified 12 repeat deficiencies that were assigned Interior’s highest risk assessment category, which represents an immediate threat to students’ and staff safety and health and require correction within a day. Examples include fire doors that did not close properly; fire alarm systems that were turned off; and obstructions that hindered access/egress to building corridors, exits, and elevators. Another school’s inspection report showed over 160 serious hazards that should have been corrected within 15 days, including missing fire extinguishers, and exit signs and emergency lights that did not work. Besides these repeat deficiencies, we also found that some schools we visited took significantly longer than Indian Affairs’ required time frames to abate high-risk deficiencies. For example, at one school, 7 of the school’s 11 boilers failed inspection in 2015 due to various high-risk deficiencies, including elevated levels of carbon monoxide and a natural gas leak (see fig. 4). Four of the 7 boilers that failed inspection were located in a student dormitory. The inspection report designated most of these boiler deficiencies as critical hazards that posed an imminent danger to life and health, which required the school to address them within a day. School officials told us they continued to operate the boilers and use the dormitory after the inspection because there was no backup system or other building available to house the students. Despite the serious risks to students and staff, most repairs were not completed for about 8 months after the boiler inspection. Indian Affairs and school officials could not provide an explanation for why repairs took significantly longer than Indian Affairs’ required time frames. Limited capacity among school staff, challenges recording abatement information in the data system, and limited funding have hindered schools’ development and implementation of abatement plans, according to school and Indian Affairs officials. Additionally, Indian Affairs has not taken needed steps to build the capacity of school staff to abate safety and health deficiencies, such as by offering basic training for staff in how to maintain and conduct repairs to school facilities. While some regional officials told us that they may provide limited assistance to schools when asked, such ad hoc assistance is not likely to build schools’ capacity to abate deficiencies because it does not address the larger challenges faced by schools. Several officials at Indian Affairs’ safety office and BIA regional offices acknowledged they do not have a plan to build schools’ capacity to address safety and health deficiencies. Absent such a plan, schools will continue to face difficulties in addressing unsafe and unhealthy conditions in school buildings. Finally, we found that Indian Affairs has not consistently monitored whether schools have established safety committees, despite policy requirements for BIA regions to ensure all schools do so. Safety committees, which are composed of school staff and students, are vital in preventing injuries and eliminating hazards, according to Indian Affairs guidance. Examples of committee activities may include reviewing inspection reports or identifying problems and making recommendations to abate unhealthy or unsafe conditions. However, BIA safety officials we interviewed in three regions estimated that about half or fewer of BIE schools had created safety committees in their respective regions, though they were unable to confirm this because they do not actively track safety committees. Without more systemic monitoring, Indian Affairs is not in a position to know whether schools have fulfilled this important requirement. To ensure that all BIE schools are positioned to address safety and health problems with their facilities and provide student environments that are free from hazards, we recommended that Interior (1) develop a plan to build schools’ capacity to promptly address safety and health problems with facilities and (2) consistently monitor whether schools have established required safety committees. Interior agreed with these recommendations. In conclusion, because Indian Affairs has neither conducted required annual inspections for BIE schools nationwide nor provided updated guidance and tools to its safety inspectors, it lacks complete and accurate safety and health information on school facilities. As a result, Indian Affairs cannot effectively determine the magnitude and severity of safety and health deficiencies at schools and is thus unable to prioritize deficiencies that pose the greatest danger to students and staff. Further, Indian Affairs has not developed a plan to build schools’ capacity to promptly address deficiencies or consistently monitored whether schools have established required safety committees. Without taking steps to improve oversight and support for BIE schools in these key areas, Indian Affairs cannot ensure that the learning and work environments at BIE schools are safe, and it risks causing harm to the very children that it is charged with educating and protecting. Interior agreed with our recommendations to address these issues and noted several actions it plans to take. Chairman Calvert, Ranking Member McCollum, and Members of the Subcommittee, this concludes my prepared remarks. I will be happy to answer any questions you may have. If you or your staff have any questions about this testimony or the related report, please contact Melissa Emrey-Arras at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this statement and the related report include Elizabeth Sirois (Assistant Director), Edward Bodine (Analyst-in- Charge), Lara Laufer, Jon Melhus, Liam O’Laughlin, Matthew Saradjian, and Ashanta Williams. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony summarizes the information contained in GAO's March 2016 report, entitled Indian Affairs: Key Actions Needed to Ensure Safety and Health at Indian School Facilities , GAO-16-313 . The Department of the Interior's (Interior) Office of the Assistant Secretary-Indian Affairs (Indian Affairs) lacks sound information on safety and health conditions of all Bureau of Indian Education (BIE) school facilities. Specifically, GAO found that Indian Affairs' national information on safety and health deficiencies at schools is not complete and accurate because of key weaknesses in its inspection program, which prevented GAO from conducting a broader analysis of schools' safety and health conditions. Indian Affairs' policy requires its regional safety inspectors to conduct inspections of all BIE schools annually to identify facility deficiencies that may pose a threat to the safety and health of students and staff. However, GAO found that 69 out of 180 BIE school locations were not inspected in fiscal year 2015, an increase from 55 locations in fiscal year 2012. Agency officials told GAO that vacancies among regional staff contributed to this trend. As a result, Indian Affairs lacks complete information on the frequency and severity of health and safety deficiencies at BIE schools nationwide and cannot be certain all school facilities are currently meeting safety requirements. Number of Bureau of Indian Education School Locations That Were Inspected for Safety and Health, Fiscal Years 2012-2015 Indian Affairs is responsible for assisting schools on safety issues, but it is not taking needed steps to support schools in addressing safety and health deficiencies. While national information is not available, officials at several schools GAO visited said they faced significant difficulties addressing deficiencies identified in annual safety and health and boiler inspections. Inspection documents for two schools GAO visited showed numerous high-risk safety and health deficiencies—such as missing fire extinguishers—that were identified in the prior year's inspection report, but had not been addressed. At another school, four aging boilers in a dormitory failed inspection due to elevated levels of carbon monoxide, which can cause poisoning where there is exposure, and a natural gas leak, which can pose an explosion hazard. Interior's policy in this case calls for action within days of the inspection to protect students and staff, but the school continued to use the dormitory, and repairs were not made for about 8 months. Indian Affairs and school officials across several regions said that limited staff capacity, among other factors, impedes schools' ability to address safety deficiencies. Interior issued an order in 2014 that emphasizes building tribes' capacity to operate schools. However, it has not developed a plan to build BIE school staff capacity to promptly address deficiencies. Without Indian Affairs' support of BIE schools to address these deficiencies, unsafe conditions at schools will persist and may endanger students and staff.

The purpose of the NextGen Test Bed is to provide an environment in which laboratory testing and real-world demonstrations help to show the benefits of NextGen technologies. Furthermore, the Test Bed provides access to the systems currently used in the NAS, which allows for testing and evaluating the integration and interoperability of new technologies. The Test Bed is also meant to bring together stakeholders early in the technology development process so participants can understand the benefits of operational improvements, identify potential risks and integration and interoperability issues, and foster partnerships between government and industry. Some test facilities also serve as a forum in which private companies can learn from and partner with each other and eventually enter into technology acquisition agreements with FAA with reduced risk. Each of the NextGen test facilities that compose the NextGen Test Bed offers different testing capabilities and brings together different participants. The test facilities include: (1) the Florida Test Bed at Daytona Beach International Airport, supported by Embry-Riddle Aeronautical University (Embry-Riddle); (2) the Texas Test Bed, a National Aeronautics and Space Administration (NASA) facility near the Dallas-Fort Worth Airport; and (3) the New Jersey Test Bed located at FAA’s William J. Hughes Technical Center near Atlantic City. (See fig. 1). According to FAA, while physically in different locations, the facilities are united in their purpose and will eventually be integrated to share capabilities and information. While sharing a common purpose, each facility offers different testing capabilities and brings together different participants from different communities, as follows:  The Florida Test Bed is located in a private facility at which companies, including Lockheed Martin and Boeing, come together with academia and FAA to test technologies that fit into the NextGen vision. Private participants contribute financially to research and demonstration projects and collaborate to test concepts and technologies. These activities are guided by memorandums of understanding among all the participants. Embry-Riddle is currently working on a model agreement to govern the contributions of its private partners that will help delineate which components (hardware, software, and infrastructure) will be provided by the government and which by private participants. The model is meant to provide a cost- sharing method and also help engage participants and provide a means for them to have a vested interest in seeing the development of the technology all the way through to implementation. Currently, FAA pays the operating costs of the Florida Test Bed while Embry- Riddle and participating companies contribute technology and technical staff. Private participants may invest directly in software or hardware support. The facility—which has just undergone an expansion—provides access to the systems currently used in the NAS and to some of the major navigation, surveillance, communications, and weather information programs that are under development. It also has a dedicated area to support demonstrations and a separate space for the participating companies to test integration—where a greater contribution from the private sector is envisioned.  The Texas Test Bed is a collaborative effort between NASA and FAA built on the grounds of FAA’s Fort Worth Air Route Traffic Control Center. It supports NextGen research through field evaluations, shadow testing, the evaluation of simulations, and data collection and analysis. The researchers at the facility have agreements to receive data feeds from the airlines operating at the Dallas-Fort Worth airport, as well as various data feeds from airport and air traffic control facilities.  The New Jersey Test Bed, located at FAA’s national scientific test base, conducts research and development for new NextGen systems. In June 2010, this facility opened the NextGen Integration and Evaluation Capability area where scientists use real-time simulation to explore, integrate, and evaluate NextGen concepts, such as area navigation, trajectory-based operations, and unmanned aircraft system operations in the NAS. In addition, in 2008, FAA entered into a lease to build the Next Generation Research and Technology Park (the Park) adjacent to the New Jersey Test Bed. The Park is a partnership intended to engage industry in a broad spectrum of research projects, with access to state-of-the-art federal laboratories. The Park’s establishment is meant to encourage the transfer of scientific and technical information, data, and know-how to and from the private sector and is consistent with FAA’s technology transfer goals. (See table 1 for examples of past and planned activities at NextGen test facilities.) According to officials from the test facilities, they have made some progress in their plans to link the NextGen test facilities to integrate capabilities and share information. Linking the test facilities to leverage the benefits of each is part of the NextGen Test Bed concept. According to an FAA official, in June 2011, the Florida and New Jersey Test Beds established data integration capabilities when they were connected with FAA’s NextGen Research and Development computer network. During the summer, they used the integrated capabilities to participate in a demonstration of the Oceanic Conflict Advisory Trial (OCAT) system. In addition, the Texas Test Bed is in the final stages of being connected to FAA’s NextGen Research and Development computer network. According to officials at the Texas Test Bed, in the past year, FAA and NASA collaborated on a NextGen Test Bed capabilities analysis and developed an interagency agreement to support NextGen Test Bed collaboration. This increased level of coordination is expected to continue. In prior work on technology transfer activities, we found that the success of test facilities as a means to leverage private sector resources depends in large part on the extent to which the private sector perceives benefits to its participation. Representatives of firms participating in test facility activities told us that tangible results—that is, the implementation of technologies they helped to develop—were important to maintain the private sector’s interest. However, they said it was not always clear what happened to technologies that were successfully tested at these sites. In some cases, it was not apparent whether the technology being tested had a clear path to implementation, or whether that technology had a clear place in FAA’s NAS Enterprise Architecture Infrastructure Roadmaps. As a result, a successfully tested technology would not move to implementation in the NAS. We also found that FAA has had difficulty advancing technologies that cut across programs and offices at FAA, when there is no clear “home” or “champion” within FAA for the technology. FAA’s expansion of the Test Bed concept—linking together its testing facilities, expanding the Florida Test Bed, and building a Research and Technology Park adjacent to the New Jersey Test Bed to complement the capabilities at Embry-Riddle—is a positive step that should help to address some of these issues, allowing private sector participants to remain more involved throughout the process, with a vested interest in seeing the development of selected technologies through to successful implementation. In addition, to improve its ability to implement new technologies, FAA has begun to restructure its Air Traffic Organization (ATO), which is responsible for moving air traffic safely and efficiently, as well as for implementing NextGen. We have previously reported on problems with FAA’s management structure and oversight of NextGen acquisitions and implementation and made recommendations designed to improve FAA’s ability to manage portfolios of capabilities across program offices. To address these issues, FAA made the Deputy Administrator responsible for the NextGen organization and created a new head of program management for NextGen-related programs to ensure improved oversight of NextGen implementation. Furthermore, the ATO is in the process of being divided into two branches: operations and NextGen program management. Operations will focus on the day-to-day management of the NAS and the program management branch will be responsible for developing and implementing programs while working with operations to ensure proper integration. While a focus on accountability for NextGen implementation is a positive step and can help address issues with respect to finding the right “home” for technologies and creating a clearer path to implementation, it is too early to tell whether this reorganization will produce the desired results. Collaboration among the NextGen partner agencies also depends, in part, on their perceiving positive outcomes. NASA has historically been FAA’s primary source of long-term air traffic management research and continues to lead research and development activities for many key elements of NextGen. However, past technology transfer efforts between NASA and FAA faced challenges at the transfer point between invention and acquisition, referred to as the “valley of death.” At this point in the process, NASA has limited funding at times to continue beyond fundamental research, but the technology was not matured to a level for FAA to assume the risks of investing in a technology that had not yet been demonstrated with a prototype or similar evidence. FAA and NASA officials are both working to address this issue through interagency agreements that specify a commitment to a more advanced level of technological maturity of research that NASA has conducted in the past. Using an interagency agreement, as well as test facility demonstrations, NASA developed and successfully transferred the Traffic Management Advisor—a program that uses graphical displays and alerts to increase situational awareness for air traffic controllers and traffic management coordinators—to FAA. Through the agreement, the two agencies established the necessary data feeds and two-way computer interfaces to support the program. NASA demonstrated the system’s capabilities at the Texas Test Bed, where it also conducted operational evaluations and transferred the program to FAA, which, after reengineering it for operational use, deployed it throughout the United States. FAA has also used research transition teams to coordinate research and transfer technologies from NASA and overcome technology transfer challenges. As we have previously reported, the design of these teams is consistent with several key practices of interagency coordination we have identified. These teams identify common outcomes, establish a joint strategy to achieve that outcome, and define each agency’s role responsibilities, allowing FAA and NASA to overcome differences in agency missions, cultures, and established ways of doing business. Differences in mission priorities, however, particularly between FAA and the Department of Homeland Security (DHS), and between FAA and the Department of Defense (DOD), pose a challenge to coordination with those agencies. DHS’s diverse set of mission priorities, ranging from aviation security to border protection, affects its level of involvement in NextGen activities. Agency officials also have stated that although different offices within DHS are involved in related NextGen activities, such as security issues, the fact that NextGen implementation is not a formalized mission in DHS can affect its level of participation in NextGen activities. NextGen stakeholders reported that FAA could more effectively engage partner agencies in long-term planning by aligning implementation activities to agency mission priorities and by obtaining agency buy-in for actions required to transform the NAS. In addition, we have reported that FAA’s mechanisms for collaborating on research and technology development efforts with DOD and DHS do not ensure that resources are fully leveraged. For example, FAA and DOD have yet to fully identify what DOD research, technology, or expertise could support NextGen activities. DOD has not completed an inventory of its research and development portfolio related to NextGen, impeding FAA’s ability to identify and leverage potentially useful research, technology, or expertise from DOD. In addition, DHS’s collaboration with FAA and its NextGen planning unit, the Joint Planning and Development Office has been limited in certain areas of NextGen research, and the agencies have yet to fully determine what can be leveraged. Lack of coordination between FAA and DOD and FAA and DHS could result in duplicative research and inefficient use of resources at both agencies. We previously recommended that these agencies develop mechanisms to further clarify NextGen interagency collaborative priorities and enhance technology transfer between the agencies. Chairman Mica, Ranking Member Rahall, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. For further information on this testimony, please contact Gerald L. Dillingham, Ph.D., at (202) 512-2834 or dillinghamg@gao.gov. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Andrew Von Ah (Assistant Director), Kevin Egan, Elizabeth Eisenstadt, Richard Hung, Bert Japikse, Kieran McCarthy, and Jessica Wintfeld. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony discusses the use of test facilities as a means of leveraging public, private, and academic resources to deliver technologies for the Next Generation Air Transportation System (NextGen). NextGen will affect nearly every aspect of air transportation and will transform the way in which the air transportation system operates today. It is a complex undertaking that requires new technologies--including new integrated ground and aircraft systems--as well as new procedures, processes, and supporting infrastructure. The result will be an air transportation system that relies on satellite-based surveillance and navigation, data communications, and improved collaborative decision making. Transforming the nation's air transportation system affects and involves the activities and missions of several federal agencies, though the Federal Aviation Administration (FAA) is the lead implementer. In addition, NextGen was designed and planned to be developed in collaboration with aviation stakeholders--airlines and other airspace users, air traffic controllers, and avionics, aircraft, and automation systems manufacturers--in order to facilitate coordinated research activities, transfer technologies from FAA and partner agencies to the private sector, and take advantage of research and technology developed by the private sector that could meet NextGen needs, as appropriate. Three NextGen test facilities, collectively referred to as the NextGen Test Bed, are designed to foster the research and development of NextGen-related technologies and to evaluate integrated technologies and procedures for nationwide NextGen deployment. These test facilities provide access to the systems currently used in the national air space (NAS) and house various types of hardware, simulators, and other equipment to allow for demonstrations of new technologies. They also provide opportunities for stakeholders--public and private--to collaborate with FAA, academia, and each other. This statement today discusses (1) the role of the NextGen test facilities in the development of NextGen technologies and how private industry and partner agencies participate in projects at the NextGen test facilities, and (2) our previous findings on NextGen technology transfer and FAA's efforts to improve the transfer and implementation of NextGen-related technologies. This statement is based on our prior NextGen-related reports and testimonies, updated with information we gathered from FAA and test facility officials in October 2011. The GAO reports cited in this statement contain more detailed explanations of the methods used to conduct our work, which we performed in accordance with generally accepted government auditing standards. The role of the NextGen Test Bed is to demonstrate the benefits of NextGen initiatives and to do so early in the technology development process. While sharing a common purpose, each of the three facilities that collectively make up the NextGen Test Bed offers different testing capabilities and brings together different participants from different communities. Across the test facilities private and public sector stakeholders contribute personnel, equipment, and funding to develop and integrate technologies. Linking the test facilities to leverage the benefits of each is part of the NextGen Test Bed concept and officials from the test facilities indicated they have made some progress in doing so. In prior work on technology transfer activities, we found that the success of test facilities as a means to leverage private sector resources depends in large part on the extent to which the private sector perceives benefits to its participation. Similarly, collaboration among the NextGen partner agencies depends in part on their seeing outcomes that further their mission and on identifying a common purpose. FAA has taken a number of actions to improve its ability to implement new technologies and increase partner agencies' and private sector participants' involvement in seeing the development of selected technologies through to successful implementation--including restructuring the organization responsible for implementing NextGen and linking the test facilities and improving their capabilities.

CMS calculates payment rates for each Part B drug with information on price data that manufacturers report quarterly to the agency. In reporting their price data to CMS, manufacturers are required to account for price concessions, such as discounts and rebates, which can affect the amount health care providers actually pay for a drug. The MMA defined ASP as the average sales price for all U.S. purchasers of a drug, net of volume, prompt pay, and cash discounts; charge-backs and rebates. Certain prices, including prices paid by federal purchasers, are excluded, as are prices for drugs furnished under Medicare Part D. CMS instructs pharmaceutical manufacturers to report data to CMS—within 30 days after the end of each quarter—on the average sale price for each Part B drug sold by the manufacturer. For drugs sold at different strengths and package sizes, manufacturers are required to report price and volume data for each product, after accounting for price concessions. CMS then aggregates the manufacturer-reported ASPs to calculate a national ASP for each drug category. Common drug purchasing arrangements can substantially affect the amount health care providers actually pay for a drug. Physicians and hospitals may belong to group purchasing organizations (GPO) that negotiate prices with wholesalers or manufacturers on behalf of GPO members. GPOs may negotiate different prices for different purchasers, such as physicians, suppliers of DME, or hospitals. In addition, health care providers can purchase covered outpatient drugs from general or specialty pharmaceutical wholesalers or can have direct purchase agreements with manufacturers. In these arrangements, providers may benefit from discounts, rebates, and charge-backs that reduce the actual costs providers incur. Discounts are applied at the time of purchase, while rebates are paid by manufacturers some time after the purchase. Rebates may be based on the number of several different products purchased over an extended period of time. Under a charge-back arrangement, the provider negotiates a price with the manufacturer that is lower than the price the wholesaler normally charges for the product, and the provider pays the wholesaler the negotiated price. The manufacturer then pays the wholesaler the difference between the wholesale price and the price negotiated between the manufacturer and the provider. Using an ASP-based method to set prices for Medicare Part B drugs is a practical approach compared with alternative data sources for several reasons. First, unlike AWP, ASP is based on actual transactions, making it a useful proxy for health care providers’ acquisition costs. Whereas AWPs were list prices developed by manufacturers and not required to be related to market prices that health care providers paid for products, ASPs are based on actual sales to purchasers. For similar reasons, payments based on ASPs are preferable to those based on providers’ charges, as charges are made up of costs and mark-ups, and mark-ups vary widely across providers, making estimates of the average costs of drugs across all providers wide-ranging and insufficiently precise. In addition, basing payments on charges does not offer any incentives for health care providers to minimize their acquisition costs. Second, ASPs offer relatively timely information for rate-setting purposes. Manufacturers have 30 days following the completion of each quarter to report new price data to CMS. Before the end of the quarter in which manufacturers report prices, CMS posts the updated Part B drug payment rates, to take effect the first day of the next quarter. Thus, the rates set are based on data from manufacturers that are, on average, about 6 months old. In comparison, rates for other Medicare payment systems are based on data that may be at least 2 years old. Third, acquiring price data from manufacturers is preferable to surveying health care providers, as the manufacturers have data systems in place that track prices, whereas the latter generally do not have systems designed for that purpose. In our survey of 1,157 hospitals, we found that providing data on drug acquisition costs made substantial demands on hospitals’ information systems and staff. In some cases, hospitals had to collect the data manually, provide us with copies of paper invoices, or develop new data processing to retrieve the detailed price data needed from their automated information systems. Hospital officials told us that, to submit the required price data, they had to divert staff from their normal duties, thereby incurring additional staff and contractor costs. Officials told us their data collection difficulties were particularly pronounced regarding information on manufacturers’ rebates, which affect a drug’s net acquisition cost. In addition, we incurred considerable costs as data collectors, signaling the difficulties that CMS would face should it implement similar surveys of hospitals in the future. Despite its practicality as a data source, ASP remains a “black box.” That is, CMS lacks detailed information about the components of manufacturers’ reported price data—namely, methods manufacturers use to allocate rebates to individual drugs and the sales prices paid by type of purchaser. Furthermore, for all but SCODs provided in the HOPD setting, no empirical support exists for setting rates at 6 percent above ASP, and questions remain about setting SCOD payment rates at ASP+6 percent. These information gaps make it difficult to ensure that manufacturers’ reported price data are accurate and that Medicare’s ASP rates developed from this information are appropriate. Significantly, CMS has little information about the method a manufacturer uses to allocate rebates when calculating an ASP for a drug sold with other products. Unlike discounts, which are deducted at the point of purchase, rebates are price concessions given by manufacturers subsequent to the purchaser’s receipt of the product. In our survey of hospitals’ purchase prices for SCODs, we found that hospitals received rebate payments following the receipt of some of their drug purchases but often could not determine rebate amounts. Calculating a rebate amount is complicated by the fact that, in some cases, rebates are based on a purchaser’s volume of a set, or bundle, of products defined by the manufacturer. This bundle may include more than one drug or a mixture of drugs and other products, such as bandages and surgical gloves. Given the variation in manufacturers’ purchasing and rebate arrangements, the allocation of rebates for a product is not likely to be the same across all manufacturers. CMS does not specifically instruct manufacturers to provide information on their rebate allocation methods when they report ASPs. As a result, CMS lacks the detail it needs to validate the reasonableness of the data underlying the reported prices. In addition, CMS does not require manufacturers to report details on price data by purchaser type. Because a manufacturer’s ASP is a composite figure representing prices paid by various purchasers, including both health care providers and wholesalers, CMS cannot distinguish prices paid by purchaser type—for example, hospitals compared with other institutional providers, physicians, and wholesalers. In particular, to the extent that some of the sales are to wholesalers that may subsequently mark up the manufacturer’s price in their sales to health care providers, the ASP’s representation of providers’ acquisition costs is weakened. Thus, distinguishing prices by purchaser type is important, as a central tenet of Medicare payment policy is to pay enough to ensure beneficiary access to services while paying pay no more than the cost of providing a service incurred by an efficient provider. In our 2005 report on Medicare’s proposed 2006 SCOD payment rates, we recommended that CMS collect information on price data by purchaser type to validate the reasonableness of ASP as a measure of hospital acquisition costs. Better information on manufacturers’ reported prices—for example, the extent to which a provider type’s acquisition costs vary from the CMS- calculated ASP—would help CMS set rates as accurately as possible. For most types of providers of Medicare Part B drugs—physicians, dialysis facilities, and DME suppliers—no empirical support exists for setting rates at 6 percent above ASP. In the case of HOPDs, a rationale exists based on an independent data source—our survey of hospital prices—but the process of developing rates for SCODs was not simple. In commenting on CMS’s proposed 2006 rates to pay for SCODs, we raised questions about CMS’s rationale for proposing rates that were set at 6 percent above ASP. CMS stated in its notice of proposed rulemaking that purchase prices reported in our survey for the top 53 hospital outpatient drugs, ranked by expenditures, equaled ASP+3 percent on average, and these purchase prices did not account for rebates that would have lowered the product’s actual cost to the hospital. We noted that, logically, for payment rates to equal acquisition costs, CMS would need to set rates lower than ASP+3 percent, taking our survey data into account. In effect, ASP+3 percent was the upper bound of acquisition costs. Consistent with our reasoning, CMS stated in its notice of proposed rulemaking that “Inclusion of … rebates and price concessions in the GAO data would decrease the GAO prices relative to the ASP prices, suggesting that ASP+6 percent may be an overestimate of hospitals’ average acquisition costs.” In its final rule establishing SCOD payment rates, CMS determined that our survey’s purchase prices equaled ASP+4 percent, on average, based on an analysis of data more recent than CMS had first used to determine the value of our purchase prices. CMS set the rate in the final rule at ASP+6 percent, stating that this rate covered both acquisition costs and handling costs. We have not evaluated the reasonableness of the payment rate established in the final rule. Lacking detail on the components of ASP, CMS is not well-positioned to confirm ASP’s accuracy. In addition, CMS has no procedures to validate the data it obtains from manufacturers by an independent source. In our 2006 report on lessons learned from our hospital survey, we noted several options available to CMS to confirm the appropriateness of its rates as approximating health care providers’ drug acquisition costs. Specifically, we noted that CMS could, on an occasional basis, conduct a survey of providers, similar to ours but streamlined in design; audit manufacturers’ price submissions; or examine proprietary data the agency considers reliable for validation purposes. HHS agreed to consider our recommendation, stating that it would continue to analyze the best approach for setting payment rates for drugs. Because ASP is based on actual transaction data, is relatively timely, and is administratively efficient for CMS and health care providers, we affirm the practicality of the ASP-based method for setting Part B drug payment rates. However, we remain concerned that CMS does not have sufficient information about ASP to ensure the accuracy and appropriateness of the rates. To verify the accuracy of price data that manufacturers submit to the agency, details are needed—such as how manufacturers account for rebates and other price concessions and how they identify the purchase prices of products acquired through wholesalers. Equally important is the ability to evaluate the appropriateness of Medicare’s ASP-based rate for all providers of Part B drugs over time. As we recommended in our April 2006 report, CMS should, on an occasional basis, validate ASP against an independent source of price data to ensure the appropriateness of ASP- based rates. Madam Chairman, this concludes my prepared statement. I will be happy to answer any questions you or the other Subcommittee Members may have. For further information regarding this testimony, please contact A. Bruce Steinwald at (202) 512-7101 or steinwalda@gao.gov. Phyllis Thorburn, Assistant Director; Hannah Fein; and Jenny Grover contributed to this statement. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

In 2005, the Centers for Medicare & Medicaid Services (CMS), as required by law, began paying for physician-administered Part B drugs using information on the drugs' average sales price (ASP). Subsequently, CMS selected ASP as the basis to pay for a subset of Part B drugs provided at hospital outpatient departments. To calculate ASP, CMS uses price data submitted quarterly by manufacturers. GAO was asked to discuss its work on Medicare payment rates for Part B drugs. This testimony is based on several GAO products: Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and Highlights Data Collection Lessons and Outpatient Rate-Setting Challenges for CMS, GAO-06-372 , Apr. 28, 2006; Medicare: Comments on CMS Proposed 2006 Rates for Specified Covered Outpatient Drugs and Radiopharmaceuticals Used in Hospitals, GAO-06-17R , Oct. 31, 2005; and Medicare: Payments for Covered Outpatient Drugs Exceed Providers' Costs, GAO-01-1118 , Sept. 21, 2001. Specifically, GAO's statement discusses (1) ASP as a practical and timely data source for use in setting Medicare Part B drug payment rates and (2) components of ASP that are currently unknown and implications for Medicare rate-setting. In summary, using an ASP-based method to set payment rates for Part B drugs is a practical approach compared with methods based on alternative data sources, for several reasons. First, ASP is based on actual transactions and is a better proxy for providers' acquisition costs than average wholesale price or providers' charges included on claims for payment, neither of which is based on transaction data. Second, ASPs, which manufacturers update quarterly, offer information that is relatively timely for rate-setting purposes. In comparison, rates for other Medicare payment systems are based on data that may be at least 2 years old. Finally, using manufacturers as the data source for prices is preferable to collecting such data from health care providers, as the manufacturers have data systems in place to track prices, whereas health care providers generally do not have systems designed for that purpose. CMS lacks certain information about the composition of ASP that prompted GAO, in commenting on CMS's 2006 proposed payment rates for a subset of Part B drugs, to call ASP "a black box." Significantly, CMS lacks sufficient information on how manufacturers allocate rebates to individual drugs sold in combination with other drugs or other products; this is important, as CMS does not have the detail it needs to validate the reasonableness of the data underlying the reported prices. In addition, CMS does not instruct manufacturers to provide a breakdown of price and volume data by purchaser type--that is, by physicians, hospitals, other health providers, and wholesalers, which purchase drugs for resale to health care providers. As a result, CMS cannot determine how well average price data represent acquisition costs for different purchaser types. In particular, to the extent that some of the sales are to wholesalers that subsequently mark up the manufacturer's price in their sales to providers, the ASP's representation of providers' acquisition costs is weakened. Additionally, a sufficient empirical foundation does not exist for setting the payment rate for Medicare Part B drugs at 6 percent above ASP, further complicating efforts to determine the appropriateness of the rate. Given these information gaps, CMS is not well-positioned to validate the accuracy or appropriateness of its ASP-based payment rates.

The four federal programs we examined were established from 1969 through 2000 for various purposes. The Black Lung Program was established in 1969 as a temporary federal program to provide benefits to coal miners disabled because of pneumoconiosis (black lung disease), and their dependents, until adequate state programs could be established. It has been amended several times, effectively restructuring all major aspects of the program and making it an ongoing federal program. VICP was authorized in 1986 to provide compensation to individuals for vaccine-related injury or death. According to the Department of Health and Human Services (HHS), the agency that administers the program, it was established to help stabilize manufacturers’ costs and ensure an adequate supply of vaccines. Concerns expressed by various groups contributed to the program’s establishment, including concerns from parents about harmful side effects of certain vaccines, from vaccine producers and health care providers about liability, and from the public about shortages of vaccines. RECP was established in 1990 to make partial restitution to on-site participants, uranium miners, and nearby populations who (1) were exposed to radiation from atmospheric nuclear testing or as a result of their employment in the uranium mining industry and (2) developed certain related illnesses. EEOICP was established in 2000 to provide payments to nuclear weapons plant workers injured from exposure to radiation or toxic substances, or their survivors. Initially, some qualifying workers were paid federal benefits and others were provided assistance in obtaining benefits from state workers’ compensation programs. In 2004, the federal government assumed total responsibility for benefits paid under the program. The purpose of the four federal compensation programs we examined is similar in that they all were designed to compensate individuals injured by exposure to harmful substances. However, how the programs are structured varies significantly, including who administers the program, how they are funded, the benefits provided, and who is eligible for benefits. For example: Several federal agencies are responsible for the administration of the programs: the Department of Labor (DOL) administers the Black Lung Program and EEOICP; the Department of Justice (DOJ) administers RECP and shares administration of VICP with HHS and the Court of Federal Claims. In addition, the National Institute for Occupational Safety and Health and DOJ provide support to DOL in administering EEOICP. Responsibility for administering two of the programs has changed since their inception. Specifically, claims for the Black Lung Program were initially processed and paid by the Social Security Administration but, as designed, DOL began processing claims in 1973 and took over all Black Lung Program claims processing in 1997. In 2002, the Congress officially transferred all legal responsibility and funding for the program to DOL. In addition, administration of EEOICP was initially shared between the Departments of Energy and DOL but, in 2004, DOL was given full responsibility for administering the program and paying benefits. Funding of the four programs varies. Although initially funded through annual appropriations, the Black Lung Program is now funded by a trust fund established in 1978 that is financed by an excise tax on coal and supplemented with additional funds. The tax, however, has not been adequate to fund the program; at the time of our review, the fund had borrowed over $8.7 billion from the federal treasury. For the VICP, claims involving vaccines administered before October 1, 1988, were paid with funds appropriated annually through fiscal year 1999. Claims involving vaccines administered on or after October 1, 1988, are paid from a trust fund financed by a per dose excise tax on each vaccine. For example, the excise tax on the measles, mumps, and rubella vaccine at the time of our review was $2.25. EEOICP and RECP are completely federally funded. Although RECP was initially funded through an annual appropriation, in 2002 the Congress made funding for RECP mandatory and provided $655 million for fiscal years 2002 through 2011. EEOICP is funded through annual appropriations. Benefits also vary among the four programs. Some of the benefits they provide include lump sum compensation payments and payments for lost wages, medical and rehabilitation costs, and attorney’s fees. For example, at the time of our review, when claims were approved, VICP paid medical and related costs, lost earnings, legal expenses, and up to $250,000 for pain and suffering for claims involving injuries, and up to $250,000 for the deceased’s estate, plus legal expenses, for claims involving death. The Black Lung Program, in contrast, provided diagnostic testing for miners; monthly payments based on the federal salary scale for eligible miners or their survivors; medical treatment for eligible miners; and, in some cases, payment of claimants’ attorney fees. The groups who are eligible for benefits under the four federal programs and the proof of eligibility required for each program vary widely. The Black Lung Program covers coal miners who show that they developed black lung disease and are totally disabled as a result of their employment in coal mines, and their survivors. Claimants must show that the miner has or had black lung disease, the disease arose out of coal mine employment, and the disease is totally disabling or caused the miner’s death. VICP covers individuals who show that they were injured by certain vaccines and claimants must show, among other things, that they received a qualifying vaccine. RECP covers some workers in the uranium mining industry and others exposed to radiation during the government’s atmospheric nuclear testing who developed certain diseases. Claimants must show that they were physically present in certain geographic locations during specified time periods or that they participated on-site during an atmospheric nuclear detonation and developed certain medical conditions. Finally, EEOICP covers workers in nuclear weapons facilities during specified time periods who developed specific diseases. At the time of our review, total benefits paid for two of the programs—the Black Lung Program and RECP—significantly exceeded their initial estimates. An initial cost estimate was not available for VICP. The initial estimate of benefits for the Black Lung Program developed in 1969 was about $3 billion. Actual benefits paid through 1976—the date when the program was initially to have ended—totaled over $4.5 billion and benefits paid through fiscal year 2004 totaled over $41 billion. For RECP, the costs of benefits paid through fiscal year 2004 exceeded the initial estimate by about $247 million. Table 1 shows the initial program estimates and actual costs of benefits paid through fiscal year 2004 for the four programs. Actual costs for the Black Lung Program have significantly exceeded the initial estimate for several reasons, including (1) the program was initially set up to end in 1976 when state workers’ compensation programs were to have provided these benefits to coal miners and their dependents, and (2) the program has been expanded several times to increase benefits and add categories of claimants. The reasons the actual costs of RECP have exceeded the initial estimate include the fact that the original program was expanded to provide benefits to additional categories of claimants, including uranium miners who worked above ground, ore transporters, and mill workers. Although the costs of EEOICP benefits paid through fiscal year 2004 were close to the initial estimate, these costs were expected to rise substantially because of changes that were not anticipated at the time the estimate was developed. For example, payments that were originally supposed to have been made by state workers’ compensation programs are now paid by the federal government. In addition, at the time of our review, a large proportion of the claims filed (45 percent) had not been finalized. At the time of our review, the annual administrative costs of the four programs varied. For fiscal year 2004, they ranged from approximately $3.0 million for RECP to about $89.5 million for EEOICP (see table 2). The number of claims filed for the three programs for which initial estimates were available significantly exceeded the initial estimates and the structure of the programs, including the approval process and the extent to which the programs allow claimants and payers to appeal claims decisions in the courts, affected the amount of time it took to finalize claims and compensate eligible claimants. The number of claims filed through fiscal year 2004 ranged from about 10,900 for VICP to about 960,800 for the Black Lung Program. The agencies responsible for processing claims have, at various times, taken years to finalize some claims, resulting in some claimants waiting a long time to obtain compensation. Table 3 shows the initial estimates of the number of claims anticipated and the actual number of claims filed for each program through fiscal year 2004. Factors that affected the amount of time it took the agencies to finalize claims include statutory and regulatory requirements for determining eligibility, changes in eligibility criteria that increase the volume of claims, the agency’s level of experience in handling compensation claims, and the availability of funding. For example, in fiscal year 2000, when funds appropriated for RECP were not sufficient to pay all approved claims, DOJ ceased making payments until the following fiscal year when funds became available. The approval process and the extent to which programs allow claimants and payers to appeal claims decisions also affected the time it took to process claims. For example, it can take years to approve some EEOICP claims because of the lengthy process required for one of the agencies involved in the approval process to determine the levels of radiation to which claimants were exposed. In addition, claims for benefits provided by programs in which the claims can be appealed can take a long time to finalize. For example, claimants whose Black Lung Program claims are denied may appeal their claims in the courts. At the time of our review, a Department of Labor official told us that it took about 9 months to make an initial decision on a claim and at least 3 years to finalize claims that were appealed. The federal government has played an important and growing role in providing benefits to individuals injured by exposure to harmful substances. All four programs we reviewed have been expanded to provide eligibility to additional categories of claimants, cover more medical conditions, or provide additional benefits. As the programs changed and grew, so did their costs. Initial estimates for these programs were difficult to make for various reasons, including the difficulty of anticipating how they would change over time and likely increases in costs such as medical expenses. Decisions about how to structure compensation programs are critical because they ultimately affect the costs of the programs and how quickly and fairly claims are processed and paid. This concludes my prepared statement. I would be pleased to respond to any questions that you or the Members of the Subcommittees may have. For further information, please contact Anne-Marie Lasowski at (202) 512- 7215. Individuals making key contributions to this testimony include Revae Moran, Cady Panetta, Lise Levie, and Roger Thomas. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The U.S. federal government has played an ever-increasing role in providing benefits to individuals injured as a result of exposure to harmful substances. Over the years, it has established several key compensation programs, including the Black Lung Program, the Vaccine Injury Compensation Program (VICP), the Radiation Exposure Compensation Program (RECP), and the Energy Employees Occupational Illness Compensation Program (EEOICP), which GAO has reviewed in prior work. Most recently, the Congress introduced legislation to expand the benefits provided by the September 11th Victim Compensation Fund of 2001. As these changes are considered, observations about other federal compensation programs may be useful. In that context, GAO's testimony today will focus on four federal compensation programs, including (1) the structure of the programs; (2) the cost of the programs through fiscal year 2004, including initial cost estimates and the actual costs of benefits paid, and administrative costs; and (3) the number of claims filed and factors that affect the length of time it takes to finalize claims and compensate eligible claimants. To address these issues, GAO relied on its 2005 report on four federal compensation programs. As part of that work, GAO did not review the September 11th Victim Compensation Fund of 2001. The four federal compensation programs GAO reviewed in 2005 were designed to compensate individuals injured by exposure to harmful substances. However, the structure of these programs differs significantly in key areas such as the agencies that administer them, their funding, benefits paid, and eligibility. For example, although initially funded through annual appropriations, the Black Lung Program is now funded by a trust fund established in 1978 financed by an excise tax on coal and supplemented with additional funds. In contrast, EEOICP and RECP are completely federally funded. Since the inception of the programs, the federal government's role has increased and all four programs have been expanded to provide eligibility to additional categories of claimants, cover more medical conditions, or provide additional benefits. As the federal role for these four programs has grown and eligibility has expanded, so have the costs. Total benefits paid through fiscal year 2004 for two of the programs--the Black Lung Program and RECP--significantly exceeded their initial estimates for various reasons. The initial estimate of benefits for the Black Lung Program developed in 1969 was about $3 billion. Actual benefits paid through 1976--the date when the program was initially to have ended--totaled over $4.5 billion and, benefits paid through fiscal year 2004 totaled over $41 billion. Actual costs for the Black Lung Program significantly exceeded the initial estimate for several reasons, including (1) the program was initially set up to end in 1976 when state workers' compensation programs were to have provided these benefits to coal miners and their dependents, and (2) the program has been expanded several times to increase benefits and add categories of claimants. For RECP, the costs of benefits paid through fiscal year 2004 exceeded the initial estimate by about $247 million, in part because the original program was expanded to include additional categories of claimants. In addition, the annual administrative costs for the programs varied, from approximately $3.0 million for RECP to about $89.5 million for EEOICP for fiscal year 2004. Finally, the number of claims filed for three of the programs significantly exceeded the initial estimates, and the structure of the programs affected the length of time it took to finalize claims and compensate eligible claimants. For the three programs for which initial estimates were available, the number of claims filed significantly exceeded the initial estimates. In addition, the way the programs were structured, including the approval process and the extent to which the programs allow claimants and payers to appeal claims decisions in the courts, affected how long it took to finalize the claims. Some of the claims have taken years to finalize. For example, it can take years to approve some EEOICP claims because of the lengthy process required for one of the agencies involved in the approval process to determine the levels of radiation to which claimants were exposed. In addition, claims for benefits provided by programs in which the claims can be appealed can take a long time to finalize.

Since its founding in 1718, the city of New Orleans and its surrounding areas have been subject to numerous floods from the Mississippi River and hurricanes. The greater New Orleans metropolitan area, composed of Orleans, Jefferson, St. Charles, St. Bernard, and St. Tammany parishes, sits in the tidal lowlands of Lake Pontchartrain and is bordered generally on its southern side by the Mississippi River. Lake Pontchartrain is a tidal basin about 640 square miles in area that connects with the Gulf of Mexico through Lake Borgne and the Mississippi Sound. While the area has historically experienced many river floods, a series of levees and other flood control structures built over the years were expected to greatly reduce that threat. The greatest natural threat posed to the New Orleans area continues to be from hurricane-induced storm surges, waves, and rainfalls. Several hurricanes have struck the area over the years including Hurricane Betsy in 1965, Hurricane Camille in 1969, and Hurricane Lili in 2002. The hurricane surge that can inundate coastal lowlands is the most destructive characteristic of hurricanes and accounts for most of the lives lost from hurricanes. Hurricane surge heights along the Gulf and Atlantic coasts can range up to 20 feet or more and there is growing concern that continuing losses of coastal wetlands and settlement of land in New Orleans has made the area more vulnerable to such storms. Because of such threats, a series of control structures, concrete floodwalls, and levees, was proposed for the area along Lake Pontchartrain in the 1960s. Congress first authorized construction of the Lake Pontchartrain and Vicinity, Louisiana Hurricane Protection Project in the Flood Control Act of 1965 to provide hurricane protection to areas around the lake in the parishes of Orleans, Jefferson, St. Bernard, and St. Charles. Although federally authorized, it was a joint federal, state, and local effort with the federal government paying 70 percent of the costs and the state and local interests paying 30 percent. The Corps was responsible for project design and construction and local interests were responsible for maintenance of levees and flood controls. The original project design, known as the barrier plan, included a series of levees along the lakefront, concrete floodwalls along the Inner Harbor Navigation Canal, and control structures, including barriers and flood control gates located at the Rigolets and Chef Menteur Pass areas. These structures were intended to prevent storm surges from entering Lake Pontchartrain and overflowing the levees along the lakefront. The original lakefront levees were planned to be from 9.3 feet to 13.5 feet high depending on the topography of the area directly in front of the levees. This project plan was selected over another alternative, known as the high-level plan, which excluded the barriers and flood control gates at the Rigolets and Chef Menteur Pass complexes and instead employed higher levees ranging from 16 feet to 18.5 feet high along the lakefront to prevent storm surges from inundating the protected areas. In the 1960s, the barrier plan was favored because it was believed to be less expensive and quicker to construct. As explained later in my statement, this decision was reversed in the mid-1980s. The cost estimate for the original project was $85 million (in 1961 dollars) and the estimated completion date was 1978. The original project designs were developed to combat a hurricane that might strike the coastal Louisiana region once in 200-300 years. The basis for this was the standard project hurricane developed by the Corps with the assistance of the United States Weather Bureau (now the National Weather Service). The model was intended to represent the most severe meteorological conditions considered reasonably characteristic for that region. The model projected a storm roughly equivalent to a fast-moving Category 3 hurricane. A Category 3 hurricane has winds of 111-130 miles per hour and can be expected to cause some structural damage from winds and flooding near the coast from the storm surge and inland from rains. Even before construction began on the project, it became evident that some changes to the project plan were needed. Based on updated Weather Bureau data on the severity of hurricanes, the Corps determined that the levees along the three main drainage canals, that drain water from New Orleans into Lake Pontchartrain, would need to be raised to protect against storm surges from the lake. The need for this additional work became apparent when Hurricane Betsy flooded portions of the city in September 1965. During the first 17 years of construction on the barrier plan, the Corps continued to face project delays and cost increases due to design changes caused by technical issues, environmental concerns, legal challenges, and local opposition to various aspects of the project. For example, foundation problems were encountered during construction of levees and floodwalls which increased construction time; delays were also encountered in obtaining rights-of-ways from local interests who did not agree with all portions of the plan. By 1981, cost estimates had grown to $757 million for the barrier plan, not including the cost of any needed work along the drainage canals, and project completion had slipped to 2008. At that time, about $171 million had been made available to the project and the project was considered about 50 percent complete, mostly for the lakefront levees which were at least partially constructed in all areas and capable of providing some flood protection although from a smaller hurricane than that envisioned in the plan. More importantly, during the 1970s, some features of the barrier plan were facing significant opposition from environmentalists and local groups who were concerned about environmental damages to the lake as well as inadequate protection from some aspects of the project. The threat of litigation by environmentalists delayed the project and local opposition to building the control complexes at Rigolets and Chef Menteur had the potential to seriously reduce the overall protection provided by the project. This opposition culminated in a December 1977 court decision that enjoined the Corps from constructing the barrier complexes, and certain other parts of the project until a revised environmental impact statement was prepared and accepted. After the court order, the Corps decided to change course and completed a project reevaluation report and prepared a draft revised Environmental Impact Statement in the mid-1980s that recommended abandoning the barrier plan and shifting to the high- level plan originally considered in the early 1960s. Local sponsors executed new agreements to assure their share of the non-federal contribution to the revised project. These changes are not believed to have had any role in the levee breaches recently experienced as the high-level design selected was expected to provide the same level of protection as the original barrier design. In fact, Corps staff believe that flooding would have been worse if the original proposed design had been built because the storm surge would likely have gone over the top of the barrier and floodgates, flooded Lake Pontchartain, and gone over the original lower levees planned for the lakefront area as part of the barrier plan. As of 2005, the project as constructed or being constructed included about 125 miles of levees and the following major features: New levee north of Highway U.S. 61 from the Bonnet Carré Spillway East Guide Levee to the Jefferson-St. Charles Parish boundary Floodwall along the Jefferson-St. Charles Parish boundary Enlarged levee along the Jefferson Parish lakefront Enlarged levee along the Orleans Parish lakefront Levees, floodwalls, and flood proofed bridges along the 17th Street, Orleans Avenue and London Avenue drainage canals Levees from the New Orleans lakefront to the Gulf Intracoastal Waterway Enlarged levees along the Gulf Intracoastal Waterway and the Mississippi New levee around the Chalmette area. The project also includes a mitigation dike on the west shore of Lake Pontchartrain. The current estimated cost of construction for the completed project is $738 million with the federal share being $528 million and the local share $210 million. The estimated completion date as of May 2005 for the whole project was 2015. The project was estimated to be from 60-90 percent complete in different areas. The work in Orleans Parish was estimated to be 90 percent complete with some work remaining for bridge replacement along the Orleans Avenue and London Avenue drainage canals. The floodwalls along the canals, where the recent breaches occurred, were complete. Jefferson Parish work was estimated to be 70 percent complete with work continuing on flood proofing the Hammond Highway bridge over 17th Street and two lakefront levee enlargements. Estimated completion for that work was 2010. In the Chalmette area work was estimated to be 90 percent complete with some levee enlargement work and floodwall work remaining. In St. Charles Parish work was 60 percent complete with some gaps still remaining in the levees. Closure of these gaps was scheduled by September 2005. Federal allocations for the project totaled $458 million as of the enactment of the fiscal year 2005 federal appropriation. This represents 87 percent of the Federal government’s responsibility of $528 million with about $70 million remaining to complete the project in 2015. Over the last 10 fiscal years (1996-2005), federal appropriations have totaled about $128.6 million and Corps reprogramming actions resulted in another $13 million being made available to the project. During that time, appropriations have generally declined from about $15-20 million annually in the earlier years to about $5-7 million in the last three fiscal years. While this may not be unusual given the state of completion of the project, the Corps’ project fact sheet from May 2005 noted that the President’s Budget request for fiscal years 2005 and 2006 and the appropriated amount for fiscal year 2005 were insufficient to fund new construction contracts. Among the construction efforts that could not be funded, according to the Corps, were the following: Levee enlargements in all four parishes Pumping station flood protection in Orleans Parish Floodgates and a floodwall in St. Charles Parish Bridge replacement in Orleans Parish. The Corps had also stated that it could spend $20 million in fiscal year 2006 on the project if the funds were available. The Corps noted that several levees had settled and needed to be raised to provide the design- level of protection. For the last few years, the project generally received the amount of funds appropriated to it and was not adversely affected by any Corps reprogramming actions. In recent years, questions have been raised about the ability of the project to withstand larger hurricanes than it was designed for, such as a Category 4 or 5, or even a slow-moving Category 3 hurricane that lingered over the area and produced higher levels of rainfall. Along this line, the Corps completed in 2002 a reconnaissance or pre-feasibility study on whether to strengthen hurricane protection along the Louisiana coast. A full feasibility study was estimated to take at least five years to complete and cost about $8 million. In March 2005, the Corps reported that it was allocating $79,000 to complete a management plan for the feasibility study and a cost-share agreement with local sponsors. The President’s fiscal year 2006 budget request did not include any funds for the feasibility project. In closing, the Lake Pontchartrain hurricane project has been under construction for nearly 40 years, much longer than originally envisioned and at much greater cost, although much of that can be attributed to inflation over these years, and the project is still not complete. Whether the state of completion of the project played a role in the flooding of New Orleans in the wake of Hurricane Katrina in August 2005 is still to be determined as are issues related to whether a project designed to protect against Category 4 or 5 hurricanes would or could have prevented this catastrophe. Mr. Chairman, this concludes my prepared testimony. We would be happy to respond to any questions that you or Members of the Subcommittee may have. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The greatest natural threat posed to the New Orleans area is from hurricane-induced storm surges, waves, and rainfalls. A hurricane surge that can inundate coastal lowlands is the most destructive characteristic of hurricanes and accounts for most of the lives lost from hurricanes. Hurricane surge heights along the Gulf and Atlantic coasts can exceed 20 feet. The effects of Hurricane Katrina flooded a large part of New Orleans and breached the levees that are part of the U.S. Army Corps of Engineers (Corps) Lake Pontchartrain, and Vicinity, Louisiana Hurricane Protection Project. This project, first authorized in 1965, was designed to protect the lowlands in the Lake Pontchartrain tidal basin from flooding by hurricane-induced sea surges and rainfall. GAO was asked to provide information on (1) the purpose and history of the Lake Pontchartrain, and Vicinity, Louisiana Hurricane Protection Project and (2) funding of the project. GAO is not making any recommendations in this testimony. Congress first authorized the Lake Pontchartrain and Vicinity, Louisiana Hurricane Protection Project in the Flood Control Act of 1965. The project was to construct a series of control structures, concrete floodwalls, and levees to provide hurricane protection to areas around Lake Pontchartrain. The project, when designed, was expected to take about 13 years to complete and cost about $85 million. Although federally authorized, it was a joint federal, state, and local effort. The original project designs were developed based on the equivalent of what is now called a fast-moving Category 3 hurricane that might strike the coastal Louisiana region once in 200-300 years. As GAO reported in 1976 and 1982, since the beginning of the project, the Corps has encountered project delays and cost increases due to design changes caused by technical issues, environmental concerns, legal challenges, and local opposition to portions of the project. As a result, in 1982, project costs had grown to $757 million and the expected completion date had slipped to 2008. None of the changes made to the project, however, are believed to have had any role in the levee breaches recently experienced as the alternative design selected was expected to provide the same level of protection. In fact, Corps officials believe that flooding would have been worse if the original proposed design had been built. When Hurricane Katrina struck, the project, including about 125 miles of levees, was estimated to be from 60-90 percent complete in different areas with an estimated completion date for the whole project of 2015. The floodwalls along the drainage canals that were breached were complete when the hurricane hit. The current estimated cost of construction for the completed project is $738 million with the federal share being $528 million and the local share $210 million. Federal allocations for the project were $458 million as of the enactment of the fiscal year 2005 federal appropriation. This represents 87 percent of the federal government's responsibility of $528 million with about $70 million remaining to complete the project. Over the last 10 fiscal years (1996-2005), federal appropriations have totaled about $128.6 million and Corps reprogramming actions resulted in another $13 million being made available to the project. During that time, appropriations have generally declined from about $15-20 million annually in the earlier years to about $5-7 million in the last three fiscal years. While this may not be unusual given the state of completion of the project, the Corps' project fact sheet from May 2005 noted that the President's budget request for fiscal years 2005 and 2006, and the appropriated amount for fiscal year 2005 were insufficient to fund new construction contracts. The Corps had also stated that it could spend $20 million in fiscal year 2006 on the project if the funds were available. The Corps noted that several levees had settled and needed to be raised to provide the level of protection intended by the design.

In October 1998, the EPA Administrator announced plans to create an office with responsibility for information management, policy, and technology. This announcement came after many previous efforts by EPA to improve information management and after a long history of concerns that we, the EPA Inspector General, and others have expressed about the agency’s information management activities. Such concerns involve the accuracy and completeness of EPA’s environmental data, the fragmentation of the data across many incompatible databases, and the need for improved measures of program outcomes and environmental quality. The EPA Administrator described the new office as being responsible for improving the quality of information used within EPA and provided to the public and for developing and implementing the goals, standards, and accountability systems needed to bring about these improvements. To this end, the information office would (1) ensure that the quality of data collected and used by EPA is known and appropriate for its intended uses, (2) reduce the burden of the states and regulated industries to collect and report data, (3) fill significant data gaps, and (4) provide the public with integrated information and statistics on issues related to the environment and public health. The office would also have the authority to implement standards and policies for information resources management and be responsible for purchasing and operating information technology and systems. Under a general framework for the new office that has been approved by the EPA Administrator, EPA officials have been working for the past several months to develop recommendations for organizing existing EPA personnel and resources into the central information office. Nonetheless, EPA has not yet developed an information plan that identifies the office’s goals, objectives, and outcomes. Although agency officials acknowledge the importance of developing such a plan, they have not established any milestones for doing so. While EPA has made progress in determining the organizational structure of the office, final decisions have not been made and EPA has not yet identified the employees and the resources that will be needed. Setting up the organizational structure prior to developing an information plan runs the risk that the organization will not contain the resources or structure needed to accomplish its goals. Although EPA has articulated both a vision as well as key goals for its new information office, it has not yet developed an information plan to show how the agency intends to achieve its vision and goals. Given the many important and complex issues on information management, policy, and technology that face the new office, it will be extremely important for EPA to establish a clear set of priorities and resources needed to accomplish them. Such information is also essential for EPA to develop realistic budgetary estimates for the office. EPA has indicated that it intends to develop an information plan for the agency that will provide a better mechanism to effectively and efficiently plan its information and technology investments on a multiyear basis. This plan will be coordinated with EPA ‘s agencywide strategic plan, prepared under the Government Performance and Results Act. EPA intends for the plan to reflect the results of its initiative to improve coordination among the agency’s major activities relating to information on environment and program outcomes. It has not yet, however, developed any milestones or target dates for initiating or completing either the plan or the coordination initiative. In early December 1998, the EPA Administrator approved a broad framework for the new information office and set a goal of completing the reorganization during the summer of 1999. Under the framework approved by the EPA Administrator, the new office will have three organizational units responsible for (1) information policy and collection, (2) information technology and services, and (3) information analysis and access, respectively. In addition, three smaller units will provide support in areas such as data quality and strategic planning. A transition team of EPA staff has been tasked with developing recommendations for the new office’s mission and priorities as well as its detailed organizational and reporting structure. In developing these recommendations, the transition team has consulted with the states, regulated industries, and other stakeholders to exchange views regarding the vision, goals, priorities, and initial projects for the office. One of the transition team’s key responsibilities is to make recommendations concerning which EPA units should move into the information office and in which of the three major organizational units they should go. To date, the transition team has not finalized its recommendations on these issues or on how the new office will operate and the staff it will need. Even though EPA has not yet determined which staff will be moved to the central information office, the transition team’s director told us that it is expected that the office will have about 350 employees. She said that the staffing needs of the office will be met by moving existing employees in EPA units affected by the reorganization. The director said that, once the transition team recommends which EPA units will become part of the central office, the agency will determine which staff will be assigned to the office. She added that staffing decisions will be completed by July 1999 and the office will begin functioning sometime in August 1999. The funding needs of the new office were not specified in EPA’s fiscal year 2000 budget request to the Congress because the agency did not have sufficient information on them when the request was submitted in February 1999. The director of the transition team told us that in June 1999 the agency will identify the anticipated resources that will transfer to the new office from various parts of EPA. The agency plans to prepare the fiscal year 2000 operating plan for the office in October 1999, when EPA has a better idea of the resources needed to accomplish the responsibilities that the office will be tasked with during its first year of operation. The transition team’s director told us that decisions on budget allocations are particularly difficult to make at the present time due to the sensitive nature of notifying managers of EPA’s various components that they may lose funds and staff to the new office. Furthermore, EPA will soon need to prepare its budget for fiscal year 2001. According to EPA officials, the Office of the Chief Financial Officer will coordinate a planning strategy this spring that will lead to the fiscal year 2001 annual performance plan and proposed budget, which will be submitted to the Office of Management and Budget by September 1999. The idea of a centralized information office within EPA has been met with enthusiasm in many corners—not only by state regulators, but also by representatives of regulated industries, environmental advocacy groups, and others. Although the establishment of this office is seen as an important step in improving how EPA collects, manages, and disseminates information, the office will face many challenges, some of which have thwarted previous efforts by EPA to improve its information management activities. On the basis of our prior and ongoing work, we believe that the agency must address these challenges for the reorganization to significantly improve EPA’s information management activities. Among the most important of these challenges are (1) obtaining sufficient resources and expertise to address the complex information management issues facing the agency; (2) overcoming problems associated with EPA’s decentralized organizational structure, such as the lack of agencywide information dissemination policies; (3) balancing the demand for more data with calls from the states and regulated industries to reduce reporting burdens; and (4) working effectively with EPA’s counterparts in state government. The new organizational structure will offer EPA an opportunity to better coordinate and prioritize its information initiatives. The EPA Administrator and the senior-level officials charged with creating the new office have expressed their intentions to make fundamental improvements in how the agency uses information to carry out its mission to protect human health and the environment. They likewise recognize that the reorganization will raise a variety of complex information policy and technology issues. To address the significant challenges facing EPA, the new office will need significant resources and expertise. EPA anticipates that the new office will substantially improve the agency’s information management activities, rather than merely centralize existing efforts to address information management issues. Senior EPA officials responsible for creating the new office anticipate that the information office will need “purse strings control” over the agency’s resources for information management expenditures in order to implement its policies, data standards, procedures, and other decisions agencywide. For example, one official told us that the new office should be given veto authority over the development or modernization of data systems throughout EPA. To date, the focus of efforts to create the office has been on what the agency sees as the more pressing task of determining which organizational components and staff members should be transferred into the new office. While such decisions are clearly important, EPA also needs to determine whether its current information management resources, including staff expertise, are sufficient to enable the new office to achieve its goals. EPA will need to provide the new office with sufficient authority to overcome organizational obstacles to adopt agencywide information policies and procedures. As we reported last September, EPA has not yet developed policies and procedures to govern key aspects of its projects to disseminate information, nor has it developed standards to assess the data’s accuracy and mechanisms to determine and correct errors. Because EPA does not have agencywide polices regarding the dissemination of information, program offices have been making their own, sometimes conflicting decisions about the types of information to be released and the extent of explanations needed about how data should be interpreted. Likewise, although the agency has a quality assurance program, there is not yet a common understanding across the agency of what data quality means and how EPA and its state partners can most effectively ensure that the data used for decision-making and/or disseminated to the public is of high quality. To address such issues, EPA plans to create a Quality Board of senior managers within the new office in the summer of 1999. Although EPA acknowledges its need for agencywide policies governing information collection, management, and dissemination, it continues to operate in a decentralized fashion that heightens the difficulty of developing and implementing agencywide procedures. EPA’s offices have been given the responsibility and authority to develop and manage their own data systems for the nearly 30 years since the agency’s creation. Given this history, overcoming the potential resistance to centralized policies may be a serious challenge to the new information office. EPA and its state partners in implementing environmental programs have collected a wealth of environmental data under various statutory and regulatory authorities. However, important gaps in the data exist. For example, EPA has limited data that are based on (1) the monitoring of environmental conditions and (2) the exposures of humans to toxic pollutants. Furthermore, the human health and ecological effects of many pollutants are not well understood. EPA also needs comprehensive information on environmental conditions and their changes over time to identify problem areas that are emerging or that need additional regulatory action or other attention. In contrast to the need for more and better data is a call from states and regulated industries to reduce data management and reporting burdens. EPA has recently initiated some efforts in this regard. For example, an EPA/state information management workgroup looking into this issue has proposed an approach to assess environmental information and data reporting requirements based on the value of the information compared to the cost of collecting, managing, and reporting it. EPA has announced that in the coming months, its regional offices and the states will be exploring possibilities for reducing paperwork requirements for EPA’s programs, testing specific initiatives in consultation with EPA’s program offices, and establishing a clearinghouse of successful initiatives and pilot projects. However, overall reductions in reporting burdens have proved difficult to achieve. For example, in March 1996, we reported that while EPA was pursuing a paperwork reduction of 20 million hours, its overall paperwork burden was actually increasing because of changes in programs and other factors. The states and regulated industries have indicated that they will look to EPA’s new office to reduce the burden of reporting requirements. Although both EPA and the states have recognized the value in fostering a strong partnership concerning information management, they also recognize that this will be a challenging task both in terms of policy and technical issues. For example, the states vary significantly in terms of the data they need to manage their environmental programs, and such differences have complicated the efforts of EPA and the states to develop common standards to facilitate data sharing. The task is even more challenging given that EPA’s various information systems do not use common data standards. For example, an individual facility is not identified by the same code in different systems. Given that EPA depends on state regulatory agencies to collect much of the data it needs and to help ensure the quality of that data, EPA recognizes the need to work in a close partnership with the states on a wide variety of information management activities, including the creation of its new information office. Some partnerships have already been created. For example, EPA and the states are reviewing reporting burdens to identify areas in which the burden can be reduced or eliminated. Under another EPA initiative, the agency is working with states to create data standards so that environmental information from various EPA and state databases can be more readily shared. Representatives of state environmental agencies and the Environmental Council of the States have expressed their ideas and concerns about the role of EPA’s new information office and have frequently reminded EPA that they expect to share with EPA the responsibility for setting that office’s goals, priorities, and strategies. According to a Council official, the states have had more input to the development of the new EPA office than they typically have had in other major policy issues and the states view this change as an improvement in their relationship with EPA. Collecting and managing the data that EPA requires to manage its programs have been a major long-term challenge for the agency. The EPA Administrator’s recent decision to create a central information office to make fundamental agencywide improvements in data management activities is a step in the right direction. However, creating such an organization from disparate parts of the agency is a complex process and substantially improving and integrating EPA’s information systems will be difficult and likely require several years. To fully achieve EPA’s goals will require high priority within the agency, including the long-term appropriate resources and commitment of senior management. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Pursuant to a congressional request, GAO discussed the Environmental Protection Agency's (EPA) information management initiatives, focusing on the: (1) status of EPA's efforts to create a central office responsible for information management, policy, and technology issues; and (2) major challenges that the new office needs to address to achieve success in collecting, using, and disseminating environmental information. GAO noted that: (1) EPA estimates that its central information office will be operational by the end of August 1999 and will have a staff of about 350 employees; (2) the office will address a broad range of information policy and technology issues, such as improving the accuracy of EPA's data, protecting the security of information that EPA disseminates over the Internet, developing better measures to assess environmental conditions, and reducing information collection and reporting burdens; (3) EPA recognizes the importance of developing an information plan showing the goals of the new office and the means by which they will be achieved but has not yet established milestones or target dates for completing such a plan; (4) although EPA has made progress in determining the organizational structure for the new office, it has not yet finalized decisions on the office's authorities, responsibilities, and budgetary needs; (5) EPA has not performed an analysis to determine the types and the skills of employees that will be needed to carry out the office's functions; (6) EPA officials told GAO that decisions on the office's authorities, responsibilities, budget, and staff will be made before the office is established in August 1999; (7) on the basis of GAO's prior and ongoing reviews of EPA's information management problems, GAO believes that the success of the new office depends on EPA addressing several key challenges as it develops an information plan, budget, and organizational structure for that office; and (8) most importantly, EPA needs to: (a) provide the office with the resources and the expertise necessary to solve the complex information management, policy, and technology problems facing EPA; (b) empower the office to overcome organizational challenges to adopting agencywide information policies and procedures; (c) balance EPA's need for data on health, the environment, and program outcomes with the call from the states and regulated industries to reduce their reporting burdens; and (d) work closely with its state partners to design and implement improved information management systems.

Through a number of legislative actions, Congress has indicated its desire that agencies create telework programs to accomplish a number of positive outcomes. These actions have included recognizing the need for program leadership within the agencies; encouraging agencies to think broadly in setting eligibility requirements; requiring that employees be allowed, if eligible, to participate in telework, and requiring tracking and reporting of program results. Some legislative actions have provided for funding to assist agencies in implementing programs, while other appropriations acts withheld appropriated funds until the covered agencies certified that telecommuting opportunities were made available to 100 percent of each agency’s eligible workforce. The most significant congressional action related to telework was the enactment of Sec. 359 of Pub. L. No. 106-346 in October 2000, which provides the current mandate for telework in the executive branch of the federal government by requiring each executive agency to establish a policy under which eligible employees may participate in telework.In this law, Congress required each executive branch agency to establish a telework policy under which eligible employees of the agency may participate in telework to the maximum extent possible without diminishing employee performance. The conference report language further explained that an eligible employee is any satisfactorily performing employee of the agency whose job may typically be performed at least 1 day per week by teleworking. In addition, the conference report required the Office of Personnel Management (OPM) to evaluate the effectiveness of the program and report to Congress. The legislative framework has provided both the General Services Administration (GSA) and OPM with lead roles for the governmentwide telework initiative—to provide services and resources to support and encourage telework, including providing guidance to agencies in developing their program procedures. In addition, Congress required certain agencies to designate a telework coordinator to be responsible for overseeing the implementation of telework programs and serve as a point of contact on such programs for the Committees on Appropriations. GSA and OPM provide services and resources to support the governmentwide telework implementation. OPM publishes telework guidance, which it recently updated, and works with the agency telework coordinators to guide implementation of the programs and annually report the results achieved. GSA offers a variety of services to support telework, including developing policy concerning alternative workplaces, managing the federal telework centers, maintaining the mail list server for telework coordinators, and offering technical support, consultation, research, and development to its customers. Jointly, OPM and GSA manage the federal Web site for telework, which was designed to provide information and guidance. The site provides access for employees, managers, and telework coordinators to a range of information related to telework including announcements, guides, laws, and available training. Although agency telework policies meet common requirements and often share some common characteristics, each agency is responsible for developing its own policy to fit its mission and culture. According to OPM, most agencies have specified occupations that are eligible for telework and most apply employee performance-related criteria in considering authorizing telework participation. In addition, OPM guidance states that eligible employees should sign an employee telework agreement and be approved to participate by their managers. The particular considerations concerning these requirements and procedures will differ among agencies. In our 2003 study of telework in the federal government, we identified 25 key practices that federal agencies should implement in developing their telework programs. Among those were several practices closely aligned with managing for program results including developing a business case for implementing a telework program; establishing measurable telework program goals; establishing processes, procedures, or a tracking system to collect data to evaluate the telework program; and identifying problems or issues with the telework program and making appropriate adjustments. Yet, in our assessment of the extent to which four agencies—the Department of Education, GSA, OPM, and the Department of Veterans Affairs—followed the 25 key practices, we found these four practices to be among the least employed. None of the four agencies we reviewed had effectively developed a business case analysis for implementing their telework programs. In discussing the business case key practice in our 2003 study, we cited the International Telework Association and Council, which had stated that successful and supported telework programs exist in organizations that understand why telework is important to them and what specific advantages can be gained through implementation of a telework program. According to OPM, telework is of particular interest for its advantages in the following areas: Recruiting and retaining the best possible workforce—particularly newer workers who have high expectations of a technologically forward-thinking workplace and any worker who values work/life balance. Helping employees manage long commutes and other work/life issues that, if not addressed, can reduce their effectiveness or lead to employees leaving federal employment. Reducing traffic congestion, emissions, and infrastructure effect in urban areas, thereby improving the environment. Saving taxpayer dollars by decreasing government real estate costs. Ensuring continuity of essential government functions in the event of national or local emergencies. In addition, some federal agency telework policies suggest other potential advantages. For example, the Department of Defense’s telework policy includes enhancing the department’s efforts to employ and accommodate people with disabilities as a purpose of its program. The Department of State’s policy notes that programs may be used to increase productivity. As another example, the U.S. Department of Agriculture credits telework with having a positive effect on sick leave usage and workers compensation. A business case analysis of telework can ensure that an agency’s telework program is closely aligned with its own strategic objectives and goals. Such an approach can be effective in engaging management on the benefits of telework to the organization. Making a business case for telework can help organizations understand why they support telework, address relevant issues, minimize business risk, and make the investment when it supports their objectives. Through business case analysis, organizations have been able to identify cost reductions in the telework office environment that offset additional costs incurred in implementing telework and the most attractive approach to telework implementation. We have recently noted instances where agency officials cited their telework programs as yielding some of the benefits listed above. For example, in a 2007 report on the U.S. Patent and Trademark Office (USPTO), we reported that, according to USPTO management officials, one of the three most effective retention incentives and flexibilities is the opportunity to work from remote locations. In fiscal year 2006, approximately 20 percent of patent examiners participated in the agency’s telework program, which allows patent examiners to conduct some or all of their work away from their official duty station 1 or more days per week. In addition, USPTO reported in June 2007 that approximately 910 patent examiners relinquished their office space to work from home 4 days per week. The agency believes its decision to incorporate telework as a corporate business strategy and for human capital flexibility will help recruitment and retention of its workforce, reduce traffic congestion in the national capital region, and, in a very competitive job market, enable the USPTO to hire approximately 6,000 new patent examiners over the next 5 years. As another example, in a 2007 report on the Nuclear Regulatory Commission (NRC), we noted that most NRC managers we interviewed and surveyed considered telework and flexible work schedule arrangements to be very to extremely valuable in recruiting, hiring, and retaining NRC personnel and would be at least as valuable in the next few years. With regard to the second key practice aligned with managing for results, none of the four agencies had established measurable telework program goals. As we noted in our report, OPM’s May 2003 telework guide discussed the importance of establishing program goals and objectives for telework that could be used in conducting program evaluations for telework in such areas as productivity, operating costs, employee morale, recruitment, and retention. However, even where measurement data are collected, they are incomplete or inconsistent among agencies, making comparisons meaningless. For example, in our 2005 report of telework programs in five agencies—the Departments of State, Justice, and Commerce; the Small Business Administration; and the Securities and Exchange Commission—measuring eligibility was problematic. Three of the agencies excluded employees in certain types of positions (e.g., those having positions where they handle classified information) when counting and reporting the number of eligible employees, while two of the agencies included all employees in any type of position when counting and reporting the number of eligible employees, even those otherwise precluded from participating. With regard to the third key practice—establishing processes, procedures, or a tracking system to collect data to evaluate the telework program—in our 2003 review we found that none of the four agencies studied were doing a survey specifically related to telework or had a tracking system that provided accurate participation rates and other information about teleworkers and the program. At that time, we observed that lack of such information not only impeded the agencies in identifying problems or issues related to their programs but also prevented them from providing OPM and Congress with complete and accurate data. In addition, in our 2005 study at five agencies, we found that four of the five agencies measured participation in telework based on their potential to telework rather than their actual usage. The fifth agency reported the number of participants based on a survey of supervisors who were expected to track teleworkers. According to OPM, most agencies report participation based on telework agreements, which can include both those for employees teleworking on a continuing basis as well as those for episodic telework. None of the five agencies we looked at had the capability to track who was actually teleworking or how frequently, despite the fact that the Fiscal Year 2005 Consolidated Appropriations Act covering those agencies required each of them to provide quarterly reports to Congress on the status of its telework program, including the number of federal employees participating in its program. At that time, two of the five agencies said they were in the process of implementing time and attendance systems that could track telework participation, but had not yet fully implemented them. The other three agencies said that they did not have time and attendance systems with the capacity to track telework. “The conferees are troubled that many of the agencies’ telework programs do not even have a standardized manner in which to report participation. The conferees expect each of these agencies to implement time and attendance systems that will allow more accurate reporting.” Despite this language, four of the five agencies have not yet developed such systems and are still measuring participation as they did in 2005. In the fifth agency—the Department of Justice—an official told us that the department has now implemented a Web-based time and attendance system in most bureaus and that this system allows the department to track actual telework participation in those bureaus. The Federal Bureau of Investigation (FBI) was the major exception. This fiscal year, however, the FBI began a pilot of a time and attendance application that will also have the ability to track telework. Upon completion of the pilot, the official said that all of the Department of Justice bureaus would have the ability to track telework. As for the fourth key practice closely related to managing for program results—identifying problems or issues with the telework program and making appropriate adjustments—none of the four agencies we reviewed for our 2003 study had fully implemented this practice and one of the four had taken no steps to do so despite the importance of using data to evaluate and improve their telework programs. An OPM official told us, for example, that she did not use the telework data she collected to identify issues with the program; instead, she relied on employees to bring problems to her attention. To help agencies better manage for results through telework programs, in our 2005 study we had said that Congress should determine ways to promote more consistent definitions and measures related to telework. In particular, we suggested that Congress might want to have OPM, working through the Chief Human Capital Officers (CHCO) Council, develop a set of terms, definitions, and measures that would allow for a more meaningful assessment of progress in agency telework programs. Program management and oversight could be improved by more consistent definitions, such as eligibility. Some information may take additional effort to collect, as for example, on actual usage of telework. Other valuable information may already be available through existing sources. The Federal Human Capital Survey, for example—which is administered biennially—asks federal employees about their satisfaction with telework, among other things. In the latest survey, only 22 percent indicated they were satisfied or very satisfied, while 44 percent indicated they had no basis to judge—certainly, there seems to be room for improvement there. In any case, OPM and the agency CHCO Council are well situated to sort through these issues and consider what information would be most useful. The CHCO Council and OPM could also work together on strategies for agencies to use the information for program improvements, including benchmarking. In conclusion, telework is a key strategy to accomplish a variety of federal goals. Telework is an investment in both an organization’s people and the agency’s capacity to perform its mission. We continue to believe that more fully implementing the practices related to managing for program results will significantly contribute to improving the success of federal telework programs. Mr. Chairman and members of the subcommittee, this completes my statement. I would be pleased to respond to any questions that you may have. For further information on this testimony, please contact Bernice Steinhardt, Director, Strategic Issues, at (202) 512-6806 or steinhardtb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals making key contributions to this testimony include William J. Doherty, Assistant Director; Joyce D. Corry; and Judith C. Kordahl. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Telework continues to receive attention within Congress and federal agencies as a human capital strategy that offers various flexibilities to both employers and employees. Increasingly recognized as an important means to achieving a number of federal goals, telework offers greater capability to continue operations during emergency events, as well as affording environmental, energy, and other benefits to society. This statement highlights some of GAO's prior work on federal telework programs, including key practices for successful implementation of telework initiatives, identified in a 2003 GAO report and a 2005 GAO analysis of telework program definitions and methods in five federal agencies. It also notes more recent work where agency officials cite their telework programs as yielding benefits. As GAO has previously recommended, Congress should determine ways to promote more consistent telework definitions and measures. In particular, Congress might want to have the Office of Personnel Management (OPM) and the Chief Human Capital Officers Council develop definitions and measures that would allow for a more meaningful assessment of progress in agency telework programs. Through a number of legislative actions, Congress has indicated its desire that agencies create telework programs to accomplish a number of positive outcomes. Many of the current federal programs were developed in response to a 2000 law that required each executive branch agency to establish a telework policy under which eligible employees may participate in telecommuting to the maximum extent possible without diminishing employee performance. The legislative framework has provided OPM and the General Services Administration with lead roles for the governmentwide telework initiative--providing services and resources to support and encourage telework. Although agency telework policies meet common requirements and often share characteristics, each agency is responsible for developing its own policy to fit its mission and culture. In a 2003 report, GAO identified a number of key practices that federal agencies should implement in developing their telework programs. Four of these were closely aligned with managing for program results: (1) developing a business case for telework, (2) establishing measurable telework program goals, (3) establishing systems to collect data for telework program evaluation, and (4) identifying problems and making appropriate adjustments. None of the four agencies we reviewed, however, had effectively implemented any of these practices. In a related review of five other agencies in 2005, GAO reported that none of the agencies had the capacity to track who was actually teleworking or how frequently, relying mostly on the number of telework agreements as the measure of program participation. Consistent definitions and measures related to telework would help agencies better manage for results through their telework programs. For example, program management and oversight could be improved by more consistent definitions, such as eligibility. Some information may take additional efforts to collect, for example, on actual usage of telework rather than employees' potential to telework. However, other valuable information may already be available through existing sources, such as the Federal Human Capital Survey. The survey--which is administered biennially--asks federal employees about their satisfaction with telework, among other things. OPM and the Chief Human Capital Officers Council are well-situated to sort through these issues and consider what information would be most useful. The council and OPM could also work together on strategies for agencies to use the information for program improvements, including benchmarking.

We substantiated the allegation of gross mismanagement of property at IHS. Specifically, we found that thousands of computers and other property, worth millions of dollars, have been lost or stolen over the past several years. We analyzed IHS reports for headquarters and the 12 regions from the last 4 fiscal years. These reports identified over 5,000 property items, worth about $15.8 million, that were lost or stolen from IHS headquarters and field offices throughout the country. The number and dollar value of this missing property is likely much higher because IHS did not conduct full inventories of accountable property for all of its locations and did not provide us with all inventory documents as requested. Despite IHS attempts to obstruct our investigation, our full physical inventory at headquarters and our random sample of property at 7 field locations, identified millions of dollars of missing property. Our analysis of Report of Survey records from IHS headquarters and field offices show that from fiscal year 2004 through fiscal year 2007, IHS property managers identified over 5,000 lost or stolen property items worth about $15.8 million. Although we did receive some documentation from IHS, the number and dollar value of items that have been lost or stolen since 2004 is likely much higher for the following reasons. First, IHS does not consistently document lost or stolen property items. For example, 9 of the 12 IHS regional offices did not perform a full physical inventory in fiscal year 2007. Second, an average of 5 of the 12 regions did not provide us with all of the reports used to document missing property for each year since fiscal year 2004, as we requested. Third, we found about $11 million in additional inventory shortages from our analysis of inventory reports provided to us by IHS, but we did not include this amount in our estimate of lost or stolen property because IHS has not made a final determination on this missing property. Some of the egregious examples of lost or stolen property include: In April 2007, a desktop computer containing a database of uranium miners’ names, social security numbers, and medical histories was stolen from an IHS hospital in New Mexico. According to an HHS report, IHS attempted to notify the 849 miners whose personal information was compromised, but IHS did not issue a press release to inform the public of the compromised data. From 1999 through 2005, IHS did not follow required procedures to document the transfer of property from IHS to the Alaska Native Tribal Health Consortium, resulting in a 5-year unsuccessful attempt by IHS to reconcile the inventory. Our analysis of IHS documentation revealed that about $6 million of this property—including all-terrain vehicles, generators, van trailers, pickup trucks, tractors, and other heavy equipment—was lost or stolen. In September 2006, IHS property staff in Tucson attempted to write off over $275,000 worth of property, including Jaws of Life equipment valued at $21,000. The acting area director in Tucson refused to approve the write-off because of the egregious nature of the property loss. To substantiate the whistleblower’s allegation of missing IT equipment, we performed our own full inventory of IT equipment at IHS headquarters. Our results were consistent with what the whistleblower claimed. Specifically, of the 3,155 pieces of IT equipment recorded in the records for IHS headquarters, we determined that about 1,140 items (or about 36 percent) were lost, stolen, or unaccounted for. These items, valued at around $2 million, included computers, computer servers, video projectors, and digital cameras. According to IHS records, 64 of the items we identified as missing during our physical inventory were “new” in April 2007. During our investigation of the whistleblower’s complaint, IHS made a concerted effort to obstruct our work. For example, the IHS Director over property misrepresented to us that IHS was able to find about 800 of the missing items from the whistleblower’s complaint. In addition, an IHS property specialist attempted to provide documentation confirming that 571 missing items were properly disposed of by IHS. However, we found that the documentation he provided was not dated and contained no signatures. Finally, IHS provided us fabricated receiving reports after we questioned them that the original reports provided to us were missing key information on them. Figure 1 shows the fabricated receiving report for a shipment of new scanners delivered to IHS. ? As shown in figure 1, there is almost a 3-month gap between the date the equipment was received in September and the date that the receiving report was completed and signed in December—even though the document should have been signed upon receipt. In fact, the new receiving report IHS provided was signed on the same date we requested it, strongly suggesting that IHS fabricated these documents in order to obstruct our investigation. We selected a random sample of IT equipment inventory at seven IHS field offices to determine whether the lack of accountability for inventory was confined to headquarters or occurred elsewhere within the agency. Similar to our finding at IHS headquarters, our sample results also indicate that a substantial number of pieces of IT equipment were lost, stolen, or unaccounted for. Specifically, we estimate that for the 7 locations, about 1,200 equipment items or 17 percent, with a value of $2.6 million were lost, stolen or unaccounted for. Furthermore, some of the missing equipment from the seven field locations could have contained sensitive information. We found that many of the missing laptops were assigned to IHS hospitals and, therefore, could have contained patient information and social security numbers and other personal information. IHS has also exhibited ineffective management over the procurement of IT equipment, which has led to wasteful spending of taxpayer funds. Some examples of wasteful spending that we observed during our audit of headquarters and field offices include: Approximately 10 pieces of IT equipment, on average, are issued for every one employee at IHS headquarters. Although some of these may be older items that were not properly disposed, we did find that many employees, including administrative assistants, were assigned two computer monitors, a printer and scanner, a blackberry, subwoofer speakers, and multiple computer laptops in addition to their computer desktop. Many of these employees said they rarely used all of this equipment, and some could not even remember the passwords for some of their multiple laptops. IHS purchased numerous computers for headquarters staff in excess of expected need. For example, IHS purchased 134 new computer desktops and monitors for $161,700 in the summer of 2007. As of February 2008, 25 of these computers and monitors—valued at about $30,000—were in storage at IHS headquarters. In addition, many of the computer desktops and monitors purchased in the summer of 2007 for IHS headquarters were assigned to vacant offices. The lost or stolen property and waste we detected at IHS can be attributed to the agency’s weak internal control environment and its ineffective implementation of numerous property policies. In particular, IHS management has failed to establish a strong “tone at the top” by allowing inadequate accountability over property to persist for years and by neglecting to fully investigate cases related to lost and stolen items. Furthermore, IHS management has not properly updated its personal property management policies, which IHS has not revised since 1992. Moreover, IHS did not (1) conduct annual inventories of accountable property; (2) use receiving agents for acquired property at each location and designate property custodial officers in writing to be responsible for the proper use, maintenance, and protection of property; (3) place barcodes on accountable property to identify it as government property; (4) maintain proper individual user-level accountability, including custody receipts, for issued property; (5) safeguard IT equipment; or (6) record certain property in its new property management information system. To strengthen IHS’s overall control environment and “tone at the top”, we made 10 recommendations to IHS to update its policy and enforce property management policies of both the HHS and IHS. Specifically, we recommended that the Director of IHS should direct IHS property officials to take the following 10 actions: Update IHS personal property management policies to reflect any policy changes that have occurred since the last update in 1992. Investigate circumstances surrounding missing or stolen property instead of writing off losses without holding anyone accountable. Enforce policy to conduct annual inventories of accountable personal property at headquarters and all field locations. Enforce policy to use receiving agents to document the receipt of property and distribute the property to its intended user and to designate property custodial officers in writing to be responsible for the proper use, maintenance, and protection of property. Enforce policy to place bar codes on all accountable property. Enforce policy to document the issuance of property using hand receipts and make sure that employees account for property at the time of transfer, separation, change in duties, or on demand by the proper authority. Maintain information on users of all accountable property, including their buildings and room numbers, so that property can easily be located. Physically secure and protect property to guard against loss and theft of equipment. Enforce the use of the property management information system database to create reliable inventory records. Establish procedures to track all sensitive equipment such as blackberries and cell phones even if they fall under the accountable dollar threshold criteria. HHS agreed with 9 of the 10 recommendations. HHS disagreed with our recommendation to establish procedures to track all sensitive equipment such as blackberries and cell phones even if they fall under the accountable dollar threshold criteria. We made this recommendation because we identified examples of lost or stolen equipment that contained sensitive data, such as a PDA containing medical data for patients at a Tucson, Arizona area hospital. According to an IHS official, the device contained no password or data encryption, meaning that anyone who found (or stole) the PDA could have accessed the sensitive medical data. While we recognize that IHS may have taken steps to prevent the unauthorized release of sensitive data and acknowledge that it is not required to track devices under a certain threshold, we are concerned about the potential harm to the public caused by the loss or theft of this type of equipment. Therefore, we continue to believe that such equipment should be tracked and that our recommendation remains valid. Mr. Chairman and Members of the Committee, this concludes our statement. We would be pleased to answer any questions that you or other members of the committee may have at this time. For further information about this testimony, please contact Gregory D. Kutz at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. In addition to the individual named above, the individuals who made major contributions to this testimony were Verginie Amirkhanian, Erika Axelson, Joonho Choi, Jennifer Costello, Jane Ervin, Jessica Gray, Richard Guthrie, John Kelly, Bret Kressin, Richard Kusman, Barbara Lewis, Megan Maisel, Andrew McIntosh, Shawn Mongin, Sandra Moore, James Murphy, Andy O’Connell, George Ogilvie, Chevalier Strong, Quan Thai, Matt Valenta, and David Yoder. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

In June 2007, GAO received information from a whistleblower through GAO's FraudNET hotline alleging millions of dollars in lost and stolen property and gross mismanagement of property at Indian Health Service (IHS), an operating division of the Department of Health and Human Services (HHS). GAO was asked to conduct a forensic audit and related investigations to (1) determine whether GAO could substantiate the allegation of lost and stolen property at IHS and identify examples of wasteful purchases and (2) identify the key causes of any loss, theft, or waste. GAO analyzed IHS property records from fiscal years 2004 to 2007, conducted a full physical inventory at IHS headquarters, and statistically tested inventory of information technology (IT) equipment at seven IHS field locations in 2007 and 2008. GAO also examined IHS policies, conducted interviews with IHS officials, and assessed the security of property. Millions of dollars worth of IHS property has been lost or stolen over the past several years. Specifically: IHS identified over 5,000 lost or stolen property items, worth about $15.8 million, from fiscal years 2004 through 2007. These missing items included all-terrain vehicles and tractors; Jaws of Life equipment; and a computer containing sensitive data, including social security numbers. GAO's physical inventory identified that over 1,100 IT items, worth about $2 million, were missing from IHS headquarters. These items represented about 36 percent of all IT equipment on the books at headquarters in 2007 and included laptops and digital cameras. Further, IHS staff attempted to obstruct GAO's investigation by fabricating hundreds of documents. GAO also estimates that IHS had about 1,200 missing IT equipment items at seven field office locations worth approximately $2.6 million. This represented about 17 percent of all IT equipment at these locations. However, the dollar value of lost or stolen items and the extent of compromised data are unknown because IHS does not consistently document lost or stolen property, and GAO only tested a limited number of IHS locations. Information related to cases where GAO identified fabrication of documents and potential release of sensitive data was referred to the HHS Inspector General for further investigation. GAO identified that the loss, theft, and waste can be attributed to IHS's weak internal control environment. IHS management has failed to establish a strong "tone at the top," allowing property management problems to continue for more than a decade with little or no improvement or accountability for lost and stolen property and compromise of sensitive personal data. In addition, IHS has not effectively implemented numerous property policies, including the proper safeguards for its expensive IT equipment. For example, IHS disposed of over $700,000 worth of equipment because it was "infested with bat dung."

Leading organizations engage in broad, integrated succession planning and management efforts that focus on strengthening both current and future organizational capacity. As part of this approach, these organizations identify, develop, and select successors who are the right people, with the right skills, at the right time for leadership and other key positions. We identified specific succession planning and management practices that agencies in Australia, Canada, New Zealand, and the United Kingdom are implementing that reflect this broader focus on building organizational capacity. Collectively, these agencies’ succession planning and management initiatives demonstrated the following six practices. 1. Receive Active Support of Top Leadership. Effective succession planning and management initiatives have the support and commitment of their organizations’ top leadership. In other governments and agencies, to demonstrate its support of succession planning and management, top leadership actively participates in the initiatives. For example, each year the Secretary of the Cabinet, Ontario Public Service’s (OPS) top civil servant, convenes and actively participates in a 2-day succession planning and management retreat with the heads of every government ministry. At this retreat, they discuss the anticipated leadership needs across the government as well as the individual status of about 200 high-potential executives who may be able to meet those needs over the next year or two. Top leadership also demonstrates its support of succession planning and management when it regularly uses these programs to develop, place, and promote individuals. The Royal Canadian Mounted Police’s (RCMP) senior executive committee regularly uses the agency’s succession planning and management programs when making decisions to develop, place, and promote its top 500-600 employees, both officers and civilians. The RCMP’s executive committee, consisting of the agency’s chief executive, the chief human capital officer, and six other top officials, meets quarterly to discuss the organization’s succession needs and to make the specific decisions concerning individual staff necessary to address those needs. Lastly, top leaders demonstrate support by ensuring that their agency’s succession planning and management initiatives receive sufficient funding and staff resources necessary to operate effectively and are maintained over time. Such commitment is critical since these initiatives can be expensive because of the emphasis they place on participant development. For example, a senior human capital manager told us that the Chief Executive of the Family Court of Australia (FCA) pledged to earmark funds when he established a multiyear succession planning and management program in 2002 despite predictions of possible budget cuts facing FCA. Similarly, at Statistics Canada—the Canadian federal government’s central statistics agency—the Chief Statistician of Canada has set aside a percentage, in this case over 3 percent, of the total agency budget to training and development, thus making resources available for the operation of the agency’s four leadership and management development programs. According to a human capital official, this strong support has enabled the level of funding to remain fairly consistent over the past 10 years. 2. Link to Strategic Planning. Leading organizations use succession planning and management as a strategic planning tool that focuses on current and future needs and develops pools of high-potential staff in order to meet the organization’s mission over the long term. Succession planning and management initiatives focus on long-term goals, are closely integrated with their strategic plans, and provide a broader perspective. For example, Statistics Canada considers the human capital required to achieve its strategic goals and objectives. During the 2001 strategic planning process, the agency’s planning committees received projections showing that a majority of the senior executives then in place would retire by 2010, and the number of qualified assistant directors in the executive development pool was insufficient to replace them. In response, the agency increased the size of the pool and introduced a development program of training, rotation, and mentoring to expedite the development of those already in the pool. For RCMP, succession planning and management is an integral part of the agency’s multiyear human capital plan and directly supports its strategic needs. It also provides the RCMP Commissioner and his executive committee with an organizationwide picture of current and developing leadership capacity across the organization’s many functional and geographic lines. To achieve this, RCMP constructed a “succession room”—a dedicated room with a graphic representation of current and potential job positions for the organization’s top 500-600 employees covering its walls—where the Commissioner and his top executives meet at least four times a year to discuss succession planning and management for the entire organization. 3. Identify Talent from Multiple Organizational Levels, Early in Careers, or with Critical Skills. Effective succession planning and management initiatives identify high-performing employees from multiple levels in the organization and still early in their careers. RCMP has three separate development programs that identify and develop high-potential employees at several organizational levels. For example, beginning at entry level, the Full Potential Program reaches as far down as the front-line constable and identifies and develops individuals, both civilians and officers, who demonstrate the potential to take on a future management role. For more experienced staff, RCMP’s Officer Candidate Development Program identifies and prepares individuals for increased leadership and managerial responsibilities and to successfully compete for admission to the officer candidate pool. Finally, RCMP’s Senior Executive Development Process helps to identify successors for the organization’s senior executive corps by selecting and developing promising officers for potential promotion to the senior executive levels. The United Kingdom’s Fast Stream program targets high-potential individuals early in their civil service careers as well as recent college graduates. The program places participants in a series of jobs designed to provide experiences, each of which is linked to strengthening specific competencies required for admission to the Senior Civil Service. According to a senior program official, program participants are typically promoted quickly, attaining midlevel management in an average of 3.5 years, and the Senior Civil Service in about 7 years after that. In addition, leading organizations use succession planning and management to identify and develop knowledge and skills that are critical in the workplace. For example, Transport Canada estimated that 69 percent of its safety and security regulatory employees, including inspectors, are eligible for retirement by 2008. Faced with the urgent need to capture and pass on the inspectors’ expertise, judgment, and insights before they retire, the agency embarked on a major knowledge management initiative in 1999 as part of its succession planning and management activities. To assist this knowledge transfer effort, Transport Canada encouraged these inspectors to use human capital flexibilities including preretirement transitional leave, which allows employees to substantially reduce their workweek without reducing pension and benefits payments. The Treasury Board of Canada Secretariat, a federal central management agency, found that besides providing easy access to highly specialized knowledge, this initiative ensures a smooth transition of knowledge from incumbents to successors. 4. Emphasize Developmental Assignments in Addition to Formal Training. Leading succession planning and management initiatives emphasize developmental or “stretch” assignments for high-potential employees in addition to more formal training components. These developmental assignments place staff in new roles or unfamiliar job environments in order to strengthen skills and competencies and broaden their experience. For example, in Canada’s Accelerated Executive Development Program (AEXDP), developmental assignments form the cornerstone of efforts to prepare senior executives for top leadership roles in the public service. These assignments help enhance executive competencies by having participants perform work in areas that are unfamiliar or challenging to them in any of a large number of agencies throughout the Canadian Public Service. For example, a participant with a background in policy could develop his or her managerial competencies through an assignment to manage a direct service delivery program in a different agency. One challenge sometimes encountered with developmental assignments in general is that executives and managers resist letting their high-potential staff leave their current positions to move to another organization. Agencies in other countries have developed several approaches to respond to this challenge. For example, once individuals are accepted into Canada’s AEXDP, they are employees of, and paid by, the Public Service Commission, a central agency. Officials affiliated with AEXDP told us that not having to pay participants’ salaries makes executives more willing to allow talented staff to leave for developmental assignments and fosters a governmentwide, rather than an agency-specific, culture among the AEXDP participants. 5. Address Specific Human Capital Challenges, Such as Diversity, Leadership Capacity, and Retention. Leading organizations stay alert to human capital challenges and respond accordingly. Government agencies around the world, including in the United States, are facing challenges in the demographic makeup and diversity of their senior executives. Achieve a More Diverse Workforce. Leading organizations recognize that diversity can be an organizational strength that contributes to achieving results. For example, the United Kingdom’s Cabinet Office created Pathways, a 2-year program that identifies and develops senior managers from ethnic minorities who have the potential to reach the Senior Civil Service within 3 to 5 years. This program is intended to achieve a governmentwide goal to double (from 1.6 percent to 3.2 percent) the representation of ethnic minorities in the Senior Civil Service by 2005. Pathways provides executive coaching, skills training, and the chance for participants to demonstrate their potential and talent through a variety of developmental activities such as projects and short-term work placements. Maintain Leadership Capacity. Both at home and abroad, a large percentage of senior executives will be eligible to retire over the next several years. Canada is using AEXDP to address impending retirements of assistant deputy ministers—one of the most senior executive-level positions in its civil service. As of February 2003, for example, 76 percent of this group are over 50, and approximately 75 percent are eligible to retire between now and 2008. A recent independent evaluation of AEXDP by an outside consulting firm found the program to be successful and concluded that AEXDP participants are promoted in greater numbers than, and at a significantly accelerated rate over, their nonprogram counterparts. Increase Retention of High-Potential Staff. Canada’s Office of the Auditor General (OAG) uses succession planning and management to provide an incentive for high-potential employees to stay with the organization and thus preserve future leadership capacity. Specifically, OAG identified increased retention rates of talented employees as one of the goals of the succession planning and management program it established in 2000. Over the program’s first 18 months, annualized turnover in OAG’s high-potential pool was 6.3 percent compared to 10.5 percent officewide. This official told us that the retention of members of this high-potential pool was key to OAG’s efforts to develop future leaders. 6. Facilitate Broader Transformation Efforts. Effective succession planning and management initiatives provide a potentially powerful tool for fostering broader governmentwide or agencywide transformation by selecting and developing leaders and managers who support and champion change. For example, in 1999, the United Kingdom launched a wide- ranging reform program known as Modernising Government, which focused on improving the quality, coordination, and accessibility of the services government offered to its citizens. Beginning in 2000, the United Kingdom’s Cabinet Office started on a process that continues today of restructuring the content of its leadership and management development programs to reflect this new emphasis on service delivery. For example, the Top Management Programme supports senior executives in developing behavior and skills for effective and responsive service delivery, and provides the opportunity to discuss and receive expert guidance in topics, tools, and issues associated with the delivery and reform agenda. These programs typically focus on specific areas that have traditionally not been emphasized for executives, such as partnerships with the private sector and risk assessment and management. Preparing future leaders who could help the organization successfully adapt to recent changes in how it delivers services is one of the objectives of the FCA’s Leadership, Excellence, Achievement, Progression program. Specifically, over the last few years FCA has placed an increased emphasis on the needs of external stakeholders. This new emphasis is reflected in the leadership capabilities FCA uses when selecting and developing program participants. The program provides participants with a combination of developmental assignments and formal training opportunities that place an emphasis on areas such as project and people management, leadership, and effective change management.

Leading public organizations here and abroad recognize that a more strategic approach to human capital management is essential for change initiatives that are intended to transform their cultures. To that end, organizations are looking for ways to identify and develop the leaders, managers, and workforce necessary to face the array of challenges that will confront government in the 21st century. The Subcommittee on Civil Service and Agency Organization, House Committee on Government Reform, requested GAO to identify how agencies in four countries--Australia, Canada, New Zealand, and the United Kingdom--are adopting a more strategic approach to managing the succession of senior executives and other public sector employees with critical skills. As part of a reexamination of what the federal government should do, how it should do it, and in some cases, who should be doing it, it is important for federal agencies to focus not just on the present but also on future trends and challenges. Succession planning and management can help an organization become what it needs to be, rather than simply to recreate the existing organization. Leading organizations go beyond a succession planning approach that focuses on simply replacing individuals and engage in broad, integrated succession planning and management efforts that focus on strengthening both current and future organizational capacity. As part of this broad approach, these organizations identify, develop, and select successors who are the right people, with the right skills, at the right time for leadership and other key positions. Governmental agencies around the world anticipate the need for leaders and other key employees with the necessary competencies to successfully meet the complex challenges of the 21st century. To this end, the experiences of agencies in Australia, Canada, New Zealand, and the United Kingdom can provide insights to federal agencies, many of which have yet to adopt succession planning and management initiatives that adequately prepare them for the future.

Social Security has provided significant income protection for the nation’s women. While women, on average, have lower earnings than men, the program has several features that are advantageous to women. First, unlike lifetime annuities purchased from private insurance companies, Social Security does not reduce women’s benefits to account for the fact that, as a group, they live longer than men. Second, Social Security uses a progressive formula to calculate individual benefits, which replaces a relatively larger proportion of lifetime earnings for people with low earnings than for people with high earnings. Because women typically earn less than men, women’s monthly benefits replace a larger proportion of their earnings. The program also provides benefits to retirees’ dependents—such as spouses, ex-spouses, and survivors—and roughly 99 percent of these benefits go to women. Nevertheless, women receive lower Social Security benefits than men. In December 1997, the average monthly retired worker benefit for women was $662.40 compared to $860.50 for men. This is because Social Security benefits are based primarily on a worker’s lifetime covered earnings, which on average are much lower for women. Although labor market differences between men and women have narrowed over time, the Bureau of Labor Statistics does not project that they will disappear entirely, even in the long term. Thus, women can expect to continue to receive lower average monthly benefits than men, although these differences are partially offset by the presence of spousal benefits. women’s Social Security benefits relative to men’s, since under the current rules Social Security calculates monthly benefits on the basis of lifetime taxable earnings averaged over a worker’s 35 years of highest earnings. Because women generally spend more time out of the labor force than men (primarily for reasons associated with child rearing), they have fewer years of taxable earnings; thus, more years with zero earnings are included in calculating their benefits. Even if women and men had identical annual earnings when they both worked, women’s shorter time spent in the labor force results in lower average lifetime earnings, which in turn leads to lower retirement benefits. In 1993, the average 62-year-old man had worked 36 years, whereas the average 62-year-old woman had worked only 25 years. Almost 60 percent of these 62-year-old men had a full 35 years of covered earnings compared with less than 20 percent of women. A second cause of lower lifetime earnings is women’s lower wage rates. In part, this reflects the fact that women are more likely to work part-time, and part-time workers tend to earn lower wages than full-time workers. However, even if only year-round, full-time male and female workers are compared, the median earnings for women are still less than 75 percent of men’s. The gap narrows when differences in education, years of work experience, age, and other relevant factors are taken into account. The changes contained in various Social Security reform proposals would likely have a disproportionate effect on women. Many reform proposals include provisions that would reduce current benefit levels, for example, reductions in the cost-of-living adjustment and increases in the normal or early retirement ages. Reducing all benefits proportionately would hit hardest those who have little retirement income other than Social Security. Reducing Social Security benefits by, for example, 10 percent would result in a 10-percent reduction in total retirement income for those who have no other source of income but would cause only a 5-percent reduction for those who rely on Social Security for only half their retirement income. Women, especially elderly women, are more likely to rely heavily, if not entirely, on Social Security. Among Social Security beneficiaries aged 65 or older in 1996, about half the married couples, two-thirds of the unmarried men, and three-fourths of the unmarried women (who accounted for almost half of the three groups) relied on Social Security for at least half their retirement income. One-fourth of the unmarried women relied on Social Security for all their retirement income. Other changes could exacerbate existing disadvantages for some women. For example, some proposals would extend the period for computing benefits from 35 years to 38 or 40 years. Because most women do not have even 35 years with covered earnings, increasing the computation period would increase the number of years with zero earnings used in calculating their benefits and, thus, lower their average benefit. The Social Security Administration (SSA) forecasts that fewer than 30 percent of women retiring in 2020 will have 38 years of covered earnings, compared with almost 60 percent of men. SSA estimates that extending the computation period to 38 years would reduce women’s benefits by 3.9 percent, while extending the period to 40 years would reduce their benefits by 6.4 percent. The comparable impact on men from an extension to 38 or 40 years is 3.1 percent and 5.2 percent, respectively. Some reform proposals include a specific provision designed to improve the status of survivors, who are predominantly widows, but simultaneously reduce spousal benefits that generally accrue to women. Under the current system, a retired worker’s spouse who is not entitled to benefits under her own work records will receive a benefit up to 50 percent of her husband’s benefit and a widow will receive up to 100 percent of her deceased husband’s benefit. One proposal would reduce the spousal benefit from 50 percent to 33 percent of the worker’s benefit but would increase the survivor’s benefit to either 75 percent of the couple’s combined benefit or 100 percent of the worker’s benefit, whichever is greater. One-earner couples would receive reduced lifetime benefits because the spousal benefit would be reduced while both the retiree and spouse were alive, but the survivor benefit would remain the same as under current law. Two-earner couples would lose some benefits while both were alive if one spouse was dually entitled, but the survivor would receive higher benefits than under current law. Many reform proposals would fundamentally restructure Social Security by creating retirement accounts that would be owned and managed by individuals. While such accounts can increase benefits for retirees, women on average might not reap the same advantages such an investment could bring to men. As stated earlier, the difference is partly the result of women having shorter work histories and lower earning levels, which suggests they generally will contribute less to these accounts. The difference is also partly the result of differences in investment behavior. Economists have found evidence suggesting that women generally are more risk averse than men in financial decisionmaking. Studies indicate that, compared with men, women might choose a relatively low-risk investment strategy that earns them lower rates of return for their retirement income accounts. Although proponents argue that individual accounts could raise retirement benefits for both sexes, an overly conservative investment strategy could leave women with lower final account balances than men, even if both make the same contributions. Thus, even though women could improve their financial situation under a retirement system that included individual accounts, the gap between the benefits received by men and women could increase. invest less in stocks than men. Our analysis, using different data and focusing on individuals in their prime working and saving years, increases the robustness of this conclusion. By investing less in these riskier assets, women benefit less from the potentially greater rates of return that, in the long run, stocks could generate. At the same time, however, they are not as exposed to large losses from riskier assets. While it is true that in the past U.S. stocks have almost always posted higher returns than less risky assets, there is no guarantee that they will always do so. Some pension specialists believe that information is a critical factor in helping individuals make the most of their retirement investments. Providing investors with information that covers general investment principles and financial planning advice might help both women and men to better manage their investments and close the gap in the average investment returns received by men and women. While employers are not legally required to provide this type of information, many have done so in the case of 401(k) accounts. It is not clear who would provide such information to workers under a restructured Social Security system that included mandatory individual accounts. The nature and extent of such information and education efforts, when combined with the design of related investment options, are likely to help maximize the effectiveness of, and minimize the risk associated with, individual accounts under the Social Security system. How individual account accumulations are paid out will also make a difference in retirement income for many women. Unless otherwise specified, workers could choose to receive their individual account balances at retirement as a lump-sum payment, as some pension plans now allow, to spend as they see fit. If retirees and their spouses do not accurately predict their remaining life spans and consume their account balances too quickly, they may end up with very small incomes late in life. individual accounts and still end up with very different monthly benefits if they were to purchase annuities and if the annuities were based on gender-specific life tables. Insurance companies that sell annuities usually take into account women’s longer life expectancy and either provide a lower monthly benefit to women or charge women more for the same level of benefits given to men. In the case of employer-provided group annuities, gender-neutral life tables must be used in the calculation of monthly benefits, which ensures equal benefits for men and women with the same lifetime earnings. Requirements to use gender-neutral life tables involve cross-subsidies between men and women. Insurance companies also pay lower benefits for a joint and survivor annuity that covers both husband and wife than for a single life annuity that covers only the worker during his or her lifetime—again because the total time in which the benefits are expected to be paid is longer. Women are more likely to receive the survivor portion of this type of annuity, since they are more likely to outlive their husbands. Thus, while the total lifetime annuity benefits for men and women may be similar, the monthly benefit women receive, either as retirees or as survivors, will likely be lower and could result in a lower standard of living in retirement. Other groups of women will also need to be considered if individual accounts are introduced. Under current Social Security provisions, divorced spouses and survivors are entitled to receive benefits based on their former spouse’s complete earnings record if they were married at least 10 years. Most of those receiving benefits under this provision are women. Many individual retirement account proposals do not acknowledge divorcees and survivors as having any specific claim on the individual accounts of their former spouses. Under these proposals, the current automatic provision of these benefits would be eliminated. The money in these accounts could become a part of the settlement at the time of a divorce, but the current benefit guarantee to these benefits might be lost. gender-neutral life tables would create cross-subsidies between men and women. However, doing so could protect retired women against a lower living standard that would result simply because they usually live longer than men. The needs of former spouses will also need to be considered in developing individual accounts. While the Social Security system has benefited women significantly through the spousal benefit and the progressivity of the benefit formula, women generally receive lower Social Security benefits than men because they work fewer years and earn lower wages. These work and earnings characteristics will affect the relative changes in average benefits for men and women under some reform proposals. In particular, these characteristics will work against women should reforms based on years with covered earnings be enacted. Because of women’s longer life expectancy, the creation of mandatory individual retirement accounts could also decrease women’s benefits relative to men’s if women continue to invest more conservatively than men. Women might also be disadvantaged if the accumulations in these accounts are paid as a lump sum rather than as a joint and survivor annuity based on gender-neutral life tables. Whether reforms include relatively modest modifications to the current system or more major restructurings that could include mandatory individual retirement accounts, some elements of the reform proposals could adversely affect many elderly women. Because elderly women are at risk for living in poverty, understanding how various elements of the population will be affected by different changes will be necessary if we are to protect the most vulnerable members of our society. This concludes my prepared statement. I would be happy to answer any questions you or other Members of the Subcommittee might have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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Pursuant to a congressional request, GAO reviewed: (1) how women currently fare under social security; (2) how they might be affected by some of the proposed changes in benefits to restore solvency; and (3) how women might fare under a system restructured to include individual accounts. GAO noted that: (1) women have benefited significantly from the social security program; (2) many women who work are advantaged by the progressive benefit formula that provides larger relative benefits to those with lower lifetime earnings; (3) women who did not work or had low lifetime earnings and who were married benefit from the program's spousal and survivor benefit provisions; (4) however, women typically receive lower monthly benefits than men because benefits are based on earnings and the number of years worked; (5) any across-the-board benefit cuts to restore solvency might fall disproportionately on women as a group because they rely more heavily on social security income than men; (6) other types of reform approaches can have positive or negative effects on women depending on how the reforms are designed; (7) restructuring social security to include individual accounts also will likely have different effects on men and women; (8) because women earn less than men, contributions of a fixed percentage of earnings would put less into women's individual retirement accounts; (9) available evidence indicates that women also tend to invest more conservatively than men, and thus would likely earn smaller returns on their accounts, although they would bear less risk; (10) in addition, how such accounts are structured will be extremely important to women; (11) for example, whether individuals will be required to purchase annuities with the proceeds of their accounts at retirement and how the annuities are priced could affect women quite differently from men; and (12) how benefits might be distributed to divorcees and how accounts are transferred to survivors could affect the retirement income of some elderly women.

Mr. Chairman and Members of the Subcommittee: I am pleased to be here today to discuss our observations on the General Services Administration’s (GSA) strategic plan. This plan was prepared for submission to the Office of Management and Budget (OMB) and Congress on September 30, 1997, as required by the Government Performance and Results Act of 1993 (the Results Act). Building on our July 1997 report on GSA’s April draft plan, I will discuss the improvements GSA has made and areas where GSA’s strategic plan can be improved as it evolves over time. GSA’s April 28 draft strategic plan contained all the six components required by the Results Act. However, the draft plan generally lacked clarity, context, descriptive information, and linkages among the components. GSA has since made a number of improvements, and the six components better achieve the purposes of the Act. However, additional improvements would strengthen the September 30 plan as it evolves over time. The September 30 plan continues to have general goals and objectives that seem to be expressed in terms that may be challenging to translate into quantitative analysis. The strategies component is an improvement over the prior version but would benefit from a more detailed discussion of how each goal will actually be accomplished. Although the key external factors component in the September 30 plan is clearer and provides more context, the factors are not clearly linked to the general goals and objectives. The program evaluations component provides a listing of the various program evaluations that GSA used, but it does not include the required schedule of future evaluations. Although the plan does a much better job of setting forth GSA’s statutory authorities, this addition could be further improved by linking the different authorities to either the general goals and objectives or the performance goals. The plan also refers to three related areas—crosscutting issues, major management problems, and data reliability—but the discussion is limited and not as useful as it could be in trying to assess the impact of these factors on meeting and measuring the goals. This is especially true for major management and data reliability problems, which can have a negative impact on measuring progress and achieving the goals. In the 1990s, Congress put in place a statutory framework to address long-standing weaknesses in federal government operations, improve federal management practices, and provide greater accountability for achieving results. This framework included as its essential elements financial management reform legislation, information technology reform legislation, and the Results Act. In enacting this framework, Congress sought to create a more focused, results-oriented management and decisionmaking process within both Congress and the executive branch. These laws seek to improve federal management by responding to a need for accurate, reliable information for congressional and executive branch decisionmaking. This information has been badly lacking in the past, as much of our work has demonstrated. Implemented together, these laws provided a powerful framework for developing fully integrated information about agencies’ missions and strategic priorities, data to show whether or not the goals are achieved, the relationship of information technology investment to the achievement of those goals, and accurate and audited financial information about the costs of achieving mission results. The Results Act focuses on clarifying missions, setting goals, and measuring performance toward achieving those goals. It emphasizes managing for results and pinpointing opportunities for improved performance and increased accountability. Congress intended for the Act to improve the effectiveness of federal programs by fundamentally shifting the focus of management and decisionmaking away from a preoccupation with tasks and services to a broader focus on results of federal programs. strategies) to achieve the goals and objectives and the various resources needed; (4) a description of the relationship between the long-term goals/objectives and the annual performance plans required by the Act; (5) an identification of key factors, external to the agency and beyond its control, that could significantly affect achievement of the strategic goals; and (6) a description of how program evaluations were used to establish and revise strategic goals and a schedule for future program evaluations. We reported in July that the April 28 draft plan included the six components required by the Results Act and the general goals and objectives in the plan reflected GSA’s major statutory responsibilities. However, our analysis showed that the plan could have better met the purposes of the Act and related OMB guidance. Two of the required components—how goals and objectives were to be achieved and program evaluations—needed more descriptive information on how goals and objectives were to be achieved, how program evaluations were used in setting goals, and what the schedule would be for future evaluations to better achieve the purposes of the Act. The four other required components—mission statement, general goals and objectives, key external factors, and relating performance goals to general goals and objectives—were more responsive to the Act but needed greater clarity and context. We also noted that the general goals and objectives and the mission statement in the draft plan did not emphasize economy and efficiency, as a reflection of taxpayers’ interests. Also, the general goals and objectives seem to have been expressed in terms that may be challenging to translate into quantitative or measurable analysis, and there could have been better linkages between the various components of the plan. We also reported that the plan could have been made more useful to GSA, Congress, and other stakeholders by providing a fuller description of statutory authorities and an explicit discussion of crosscutting functions, major management problems, and the adequacy of data and systems. Although the plan reflected the major pieces of legislation that establish GSA’s mission and explained how GSA’s mission is linked to key statutes, we reported that GSA could provide other useful information, such as listing laws that broaden its responsibilities as a central management agency and which are reflected in the goals and objectives. accomplishment of goals and objectives. It also made no mention of whether GSA coordinated the plan with its stakeholders. The plan was also silent on the formidable management problems we have identified over the years—issues that are important because they could have a serious impact on whether GSA can achieve its strategic goals. Finally, the plan made no mention of how data limitations would affect its ability to measure performance and ultimately manage its programs. We reported that consideration of these areas would give GSA a better framework for developing and achieving its goals and help stakeholders better understand GSA’s operating constraints and environment. The September 30 plan reflects a number of the improvements that we suggested in our July 1997 report. The clarity of the September 30 plan is improved and it provides more context, descriptive information, and linkages within and among the six components that are required by the Act. Compared to the April 28 draft, the September 30 plan generally should provide stakeholders with a better understanding of GSA’s overall mission and strategic outlook. Our analysis of the final plan also showed that, in line with our suggestion, GSA placed more emphasis on economy and efficiency in the comprehensive mission statement and general goals and objectives components. The September 30 plan also generally described the operational processes, staff skills, and technology required, as well as the human, information, and other resources needed, to meet the goals and objectives. The strategic plan now contains a listing of program evaluations that GSA used to prepare the plan and a more comprehensive discussion of the major pieces of legislation that serve as a basis for its mission, reflecting additional suggestions we made in our July 1997 report. Furthermore, the September 30 plan’s overall improvement in clarity and context should help decisionmakers and other stakeholders better understand the crosscutting, governmentwide nature of GSA’s operations as a central management agency. The September 30 plan makes some reference to major management problems in the program evaluations component and also addresses the importance of data reliability in the general goals and objectives component. The improvements that GSA has made are a step in the right direction, and the six components better achieve the purposes of the Act. However, we believe that additional improvements, which are described in the following section, would strengthen the strategic plan as it evolves over time. As we discussed in our July 7, 1997, report on the draft plan, the September 30 plan continues to have general goals and objectives that seem to be expressed in terms that may be challenging to translate into quantitative or measurable analysis. This could make it difficult to determine whether they are actually being achieved. For example, the goal to “compete effectively for the federal market” has such objectives as “provide quality products and services at competitive prices and achieve significant savings” and “open GSA to marketplace competition where appropriate to reduce costs to the government and improve customer service.” However, this goal, its related objectives, and the related narrative do not state specifically how progress will be measured, such as the amount of savings GSA intends to achieve or the timetable for opening the GSA marketplace for competition. OMB Circular A-11 specifies that general goals and objectives should be stated in a manner that allows a future assessment to be made of whether the goals are being met. The OMB guidance states that general goals that are quantitative facilitate this determination, but it also recognizes that the goals need not be quantitative and that related performance goals can be used as a basis for future assessments. However, we observed that many of the performance goals that GSA included in the plan also were not expressed in terms that could easily enable quantitative analysis, which could make gauging progress difficult in future assessments. The strategies component—how the goals and objectives will be achieved—described the operational processes, human resources and skills, and information and technology needed to meet the general goals and objectives. This component is an improvement over the prior version we reviewed, and applicable performance goals are listed with each of these factors. Although GSA chose to discuss generally the factors that will affect its ability to achieve its performance goals, we believe that a more detailed discussion of how each goal will actually be accomplished would be more useful to decisionmakers. To illustrate with a specific example, the plan could discuss the approaches that GSA will use to meet the performance goals related to its general goal of promoting responsible asset management using operational processes, human resources and skills, information and technology, and capital/other resources. is achieving its goals and objectives. We also noted that the strategies component does not discuss priorities among the goals and objectives. Such a discussion would be helpful to decisionmakers in determining where to focus priorities in the event of a sudden change in funding or staffing. Finally, GSA deferred to the President’s budget its discussion about capital and other resources. We believe it seems reasonable to include in this component at least some general discussion of how capital and other resources will be used to meet each general goal. Although the external factors component in the September 30 plan is much clearer and provides more context than the draft version we reviewed, the factors are not clearly linked to the general goals and objectives. OMB Circular A-11 states that the plan should include this link, as well as describe how achieving the goals could be affected by the factors. This improvement would allow decisionmakers to better understand how the factors potentially will affect achievement of each general goal and objective. The program evaluations component in the September 30 plan provides a listing of the various program evaluations that GSA indicates were used in developing the plan. However, it still does not include a schedule of future evaluations. Instead, the plan states that the schedule for future program evaluations is under development and that GSA intends to use the remainder of the consultation process to obtain input from Congress and stakeholders concerning the issues that should be studied on a priority basis. However, OMB Circular A-11 indicates that the schedule should have been completed and included in the September 30 plan, together with an outline of the general methodology to be used and a discussion of the particular issues to be addressed. Although the plan does a much better job of setting forth GSA’s statutory authorities in the attachment, this description could be further improved if the different statutory authorities discussed therein were linked with either the general goals and objectives or the performance goals included in the plan. Further, the plan only makes limited reference to the other important areas we identified in our July 1997 report—crosscutting issues, major management problems, and data reliability. The plan’s improved clarity and context should help decisionmakers understand the crosscutting issues that affect GSA as a central management agency. However, explicit discussion of these issues is limited, and the September 30 plan makes no reference to the extent to which GSA coordinated with stakeholders. The September 30 plan references major management problems in the program evaluations component, but it does not explicitly discuss these problems or identify which problems could have an adverse impact on meeting the general goals and objectives. Our work has shown over the years that these types of problems have significantly hampered GSA’s and its stakeholder agencies’ abilities to accomplish their missions. For example, the plan could address how GSA will attempt to ensure that its information systems meet computer security requirements or how GSA plans to address the year 2000 problem in its computer hardware and software systems. The plan does reference data reliability in the general goals and objectives component. However, the discussion of data reliability, which is so critical for measuring progress and results, is limited and not as useful as it could be in attempting to assess the impact that data problems could have on meeting the general goals and objectives. We continue to believe that greater emphasis on how GSA plans to resolve management problems and on the importance of data reliability could improve the plan. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions. The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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GAO discussed its observations on the General Services Administration's (GSA) September 30, 1997, strategic plan. GAO noted that: (1) GSA's April 1997 draft strategic plan contained all six components required by the Government Performance and Results Act; (2) however, the draft plan generally lacked clarity, context, descriptive information, and linkages among the components; (3) GSA has since made a number of improvements, and the six components now better achieve the purposes of the act; (4) however, additional improvements would strengthen the September 30 plan as it evolves over time; (5) the September 30 plan continues to have general goals and objectives that seem to be expressed in terms that may be challenging to translate into quantitative analysis; (6) the strategies component is an improvement over the prior version but would benefit from a more detailed discussion of how each goal will actually be accomplished; (7) although the external factors in the September 30 plan are clearer and provide more context, the factors are not clearly linked to the general goals and objectives; (8) the program evaluations component provides a listing of the various program evaluations that GSA used, but it does not include a required schedule of future evaluations; (9) although the plan does a much better job of setting forth GSA's statutory authorities, this addition could be further improved by linking the different authorities to either the general goals and objectives or the performance goals; (10) the plan also refers to three related areas--crosscutting issues, major management problems, and data reliability--but the discussion is limited and not as useful as it could be in articulating how these issues might affect successful accomplishment of goals and objectives; and (11) this is especially true for major management and data reliability problems, which can have a negative impact on measuring progress and achieving the goals.

The Davis-Bacon Act was enacted in 1931, in part, to protect communities and workers from the economic disruption caused by contractors hiring lower-wage workers from outside their local area, thus obtaining federal construction contracts by underbidding competitors who pay local wage rates. Labor administers the act through its Wage and Hour Division, which conducts voluntary surveys of construction contractors and interested third parties on both federal and nonfederal projects to obtain wages paid to workers in each construction job by locality. It then uses the data submitted on these survey forms to determine locally prevailing wage and fringe benefit rates for its four construction types: building, heavy, highway, and residential. To determine a prevailing wage for a specific job classification, Labor considers sufficient information to be the receipt of wage data on at least three workers from two different employers in its designated survey area. Then, in accordance with its regulations, Labor calculates the prevailing wage by determining if the same wage rate is paid to the majority (more than 50 percent) of workers employed in a specific job classification on similar projects in the area. If the same rate is not paid to the majority of workers in a job classification, the prevailing wage is the average wage rate weighted by the number of employees for which that rate was reported. In cases where the prevailing wage is also a collectively bargained, or union, rate, the rate is determined to be “union-prevailing.” To issue a wage determination—a compilation of prevailing wage rates for multiple job classifications in a given area—Labor must, according to its procedures, also have sufficient data to determine prevailing wages for at least 50 percent of key job classifications. Key job classifications are those determined necessary for one or more of the four construction types. By statute, Labor must issue wage determinations based on similar projects in the “civil subdivision of the state” in which the federal work is to be performed. Labor’s regulations state the civil subdivision will be the county, unless there are insufficient wage data. When data from a county are insufficient to issue a wage rate for a job classification, a group of counties is created. When data are still insufficient, Labor includes data from contiguous counties, combined in “groups” or “supergroups” of counties, until sufficient data are available to meet threshold guidelines to make a prevailing wage determination. Expansion to include other counties, if necessary, may continue until data from all counties in the state are combined. Counties are combined based on whether they are metropolitan or rural, and cannot be mixed. Labor has taken several steps over the last few years to address issues with its Davis-Bacon wage surveys. For example, it finished 22 open surveys that had accumulated since the agency started conducting statewide surveys in 2002. Officials said completing these surveys will allow them to focus on more recent surveys. Labor also changed how it collects and processes information for its four construction types by surveying some construction types separately rather than simultaneously, using other available sources of wage data, adjusting survey time frames, and processing survey data as it is received rather than waiting until a survey closes. For highway surveys, Labor officials said they began using certified payrolls as the primary data source because certified payrolls provide accurate and reliable wage information and eliminate the need for Labor to verify wage data reported in surveys. Labor officials estimated these changes will reduce the processing time for highway surveys by more than 80 percent, or from about 42 months to 8 months. For building and heavy surveys, Labor began a five-survey pilot in 2009, adjusting survey time frames—with shorter time frames for areas in which there are many active projects—to allow Labor to better manage the quantity of data received. In addition, Labor officials said their regional office staff have begun processing survey data as they are received rather than waiting until a survey closes, which, they said, will improve timeliness and accuracy because survey respondents will be better able to recall submitted information when contacted by regional office staff for clarification and verification. Labor expects these changes to reduce the time needed to process building and heavy surveys by approximately 54 percent, or from about 37 months to 17 months. However, while it is too early to fully assess the effects of Labor’s 2009 actions, our review found that changes to data collection and processing may not achieve expected results. We were able to analyze the timeliness of 12 of the 16 surveys conducted under Labor’s new processes at the time of our review. Of those 12 surveys—8 highway and 4 building and heavy—which we assessed against Labor’s revised timelines, we found 10 behind schedule, 1 on schedule, and 1 not started as of September 10, 2010. A challenge to survey timeliness is the fact that Labor conducts a “universe” or “census” survey of all active construction projects within a designated time frame and geographic area. As a result, the number of returned survey forms and the time required for the regional offices to process the data can vary widely. For example, for 14 surveys conducted prior to Labor’s 2009 changes, the number of forms returned per survey ranged from less than 2,000 to more than 8,000, and the average processing time per survey for data clarification and analysis ranged from 10 months to more than 40. Moreover, Labor cannot entirely control when it receives survey forms. Some regional office officials said the bulk of the forms are returned on the last day of a survey limiting officials’ ability to gain time by processing forms while the survey is ongoing as planned under the 2009 changes. To address these challenges, OMB guidance suggests agencies consider the cost and benefits of conducting a sample survey (versus a census survey) because it can often ensure data quality in a more efficient and economical way. The fact that Labor is behind schedule on surveys begun under the new processes may affect its ability to update the many published nonunion- prevailing wage rates which are several years old. Labor’s fiscal year 2010 performance goal was for 90 percent of published wage rates for building, heavy, and highway construction types to be no more than 3 years old. Our analysis found that 61 percent of published rates for these construction types were 3 years old or less. However, this figure can be somewhat misleading because of the difference in how union- and nonunion- prevailing wage rates are updated. Union-prevailing rates account for almost two-thirds of the more than 650,000 published building, heavy, and highway rates and, according to Labor’s policy, can be updated when there is a new collective bargaining agreement without Labor conducting a new survey. We found almost 75 percent of those rates were 3 years old or less. However, 36 percent of the nonunion-prevailing wage rates were 3 years old or less and almost 46 percent were 10 or more years old. These rates are not updated until Labor conducts a new survey. Several of the union and contractor association representatives we interviewed said the age of the Davis-Bacon nonunion-prevailing rates means they often do not reflect actual prevailing wages, which can make it difficult for contractors to successfully bid on federal projects. Beyond concerns with processes and timelines, we also found that critical problems with Labor’s wage survey methodology continue to hinder its survey quality. OMB guidance states that agencies need to consider the potential impact of response rate and nonresponse on the quality of information obtained through a survey. A low response rate may mean the results are misleading or inaccurate if those who respond differ substantially and systematically from those who do not respond. However, Labor cannot determine whether its Davis-Bacon survey results are representative of prevailing wages because it has not calculated survey response rates since 2002, and, other than a second letter automatically sent to nonrespondents, does not currently have a program to systematically follow up with or analyze nonrespondents. While a senior Labor official said the agency is taking steps to again calculate response rates, these changes have not been fully implemented and it is unclear if they will result in improved survey quality. The utility of issuing wage determinations at the county level is also questionable. Labor’s regulations state the county will normally be the civil subdivision for which a prevailing wage is determined; however, Labor is often unable to issue wage rates for job classifications at the county level because it does not collect enough data to meet its current sufficiency standard of wage information on at least three workers from two employers. In the results from the four surveys we reviewed, Labor issued about 11 percent of wage rates for key job classifications using data from a single county (see fig. 1).24, 25 Moreover, in 1997, Labor’s OIG reported that issuing rates by county may cause wage decisions to be based on an inadequate number of responses. In the four surveys we reviewed, more than one-quarter of the wage rates were based on data reported for six or fewer workers (see fig. 2). We analyzed wage rates for key job classifications because wage rates for nonkey job classifications can only be issued at the county or group level, but not at the supergroup or state level. Regional office officials said they may combine rates from counties with the exact same wage and fringe benefit data in their final wage compilation report, the WD-22. However, the rates being combined may have been calculated at different geographic levels—for example, one county’s rates may have been calculated at the group level while another county’s rates my have been calculated at the supergroup level. The geographic level at which rates for combined counties were calculated is not reported on the WD-22; therefore, we reported the percentage of these rates separately. In our interviews with stakeholders, concerns about the survey process and accuracy of the published wage determinations were cited as disincentives to participate. Contractors may lack the necessary resources, may not understand the purpose of the survey, or may not see the point in responding because they believe the prevailing wages issued by Labor are inaccurate, stakeholders told us. Officials we interviewed in Labor regional offices echoed many of these same concerns about contractor participation. While 19 of the 27 contractors and interested parties we interviewed said the survey form was generally easy to understand, some identified challenges with completing specific sections, such as how to apply the correct job classification. Labor officials said they did not pretest the current survey form with respondents, and our review of reports by Labor’s contracted auditor for four published surveys found most survey forms, which are verified against payroll data, had errors in areas such as number of employees and hourly and fringe benefit rates. Labor officials said they have plans to address portions of the form that confuse respondents, but could not provide specifics on how they intend to solicit input from respondents—a step recommended by OMB to reduce error. Fifteen stakeholders we interviewed said there is a lack of transparency in wage determinations because key information is not available or hard to find. Both contractor associations and union officials said improving transparency in how the published wage rates are set could enhance understanding of the process and result in greater participation in the survey. A senior Labor official said the agency is considering posting information used to determine wage rates online. Finally, while the pre-survey briefing is one of Labor’s primary outreach efforts to inform stakeholders about upcoming surveys, awareness of these briefings was mixed. In three states that were surveyed for building and heavy construction in 2009 or 2010—Arizona, North Carolina, and West Virginia—all the union representatives we interviewed said they were aware of the pre-survey briefing and representatives from four of the six state contractor associations we interviewed said they were aware a briefing had been conducted. However, in Florida and New York—last surveyed in 2005 and 2006 respectively—none of the 12 contractors we interviewed were aware that a briefing had been conducted prior to the survey. Seven of 27 stakeholders indicated that alternative approaches, such as webinars or audioconferences, might be helpful ways to reach additional contractors. While Labor has made some changes to improve the wage determination process, further steps are needed to address longstanding issues with the quality of wage determinations and enhance their transparency. In our report, we suggested that Congress consider amending its requirement that Labor issue wage rates by civil subdivision to provide the agency with more flexibility. To improve the quality and timeliness of the wage surveys, we recommended that Labor enlist an independent statistical organization to evaluate and provide objective advice on the survey, including its methods and design; the potential for conducting a sample survey instead of a census survey; the collection, processing, tracking and analysis of data; and the promotion of survey awareness. We also recommended that Labor take steps to improve the transparency of its wage determinations, which could encourage greater participation in its survey. After reviewing the draft report, Labor agreed with our recommendation to improve transparency, but said obtaining expert survey advice may be premature, given current and planned changes. We believe a time of change is exactly when the agency should obtain expert advice to ensure their efforts improve the quality of the wage determination process. A complete discussion of our recommendations, Labor’s comments, and our response are provided in our report. Chairman Walberg, Ranking Member Woolsey, and Members of the Subcommittee, this concludes my prepared remarks. I would be happy to answer any questions you may have. For further information regarding this statement, please contact Andrew Sherrill at (202) 512-7215 or sherrilla@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Gretta L. Goodwin (Assistant Director), Amy Anderson, Brenna Guarneros, Susan Aschoff, Walter Vance, Ronald Fecso (Chief Statistician), Melinda Cordero, Mimi Nguyen, and Alexander Galuten. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony discusses the Department of Labor's (Labor) procedures for determining prevailing wage rates under the Davis-Bacon Act. Davis-Bacon wages must be paid to workers on certain federally funded construction projects, and their vulnerability to the use of inaccurate data has long been an issue for Congress, employers, and workers. More recently, the passage of the American Recovery and Reinvestment Act of 2009, focused attention on the need for accurate and timely wage determinations, with more than $300 billion estimated to provide substantial funding for, among other things, federally funded building and infrastructure work potentially subject to Davis-Bacon wage rates. In the 1990s, we issued two reports that found process changes were needed to increase confidence that wage rates were based on accurate data. A third report found that changes then planned by Labor, if successfully implemented, had the potential to improve the wage determination process. However, in 2004, Labor's Office of Inspector General (OIG) found that wage data errors and the timeliness of surveys used to gather wage information from contractors and others, continued to be issues. The testimony will discuss (1) the extent to which Labor has addressed concerns regarding the quality of the Davis-Bacon wage determination process and (2) additional issues identified by stakeholders regarding the wage determination process. This testimony is based on our recently issued report, titled "Davis-Bacon Act: Methodological Changes Needed to Improve Wage Survey." In summary, we found that recent efforts to improve the Davis-Bacon wage survey have not yet addressed key issues with survey quality, such as the representativeness and sufficiency of survey data collected. Labor has made some data collection and processing changes; however, we found some surveys initiated under these changes were behind Labor's processing schedule. Stakeholders said contractors may not participate in the survey because they do not understand its purpose or do not believe the resultant prevailing wages are fully accurate. In addition, they said addressing a lack of transparency in how the published wage rates are set could result in a better understanding of the process and greater participation in the survey. We suggest Congress consider amending its requirement that Labor issue wage rates by civil subdivision to allow more flexibility. To improve the quality and timeliness of the Davis-Bacon wage surveys, we recommend Labor obtain objective expert advice on its survey design and methodology. We also recommend Labor take steps to improve the transparency of its wage determinations.

Factors, such as shortcomings in BIA’s management and additional factors generally outside of BIA’s management responsibilities—such as a complex regulatory framework, tribes’ limited capital and infrastructure, and varied tribal capacity—have hindered Indian energy development. Specifically, according to some of the literature we reviewed and several stakeholders we interviewed, BIA’s management has three key shortcomings. First, BIA does not have the data it needs to verify ownership of some oil and gas resources, easily identify resources available for lease, or easily identify where leases are in effect, inconsistent with Interior’s Secretarial Order 3215, which calls for the agency to maintain a system of records that identifies the location and value of Indian resources and allows for resource owners to obtain information regarding their assets in a timely manner. The ability to account for Indian resources would assist BIA in fulfilling its federal trust responsibility, and determining ownership is a necessary step for BIA to approve leases and other energy-related documents. However, in some cases, BIA cannot verify ownership because federal cadastral surveys—the means by which land is defined, divided, traced, and recorded—cannot be found or are outdated. It is additionally a concern that BIA does not know the magnitude of its cadastral survey needs or what resources would be needed to address them. We recommended in our June 2015 report that the Secretary of the Interior direct the Director of the BIA to take steps to work with BLM to identify cadastral survey needs. In its written comments on our report, Interior did not concur with our recommendation. However, in an August 2015 letter to GAO after the report was issued, Interior stated that it agrees this is an urgent need and reported it has taken steps to enter into an agreement with BLM to identify survey-related products and services needed to identify and address realty and boundary issues. In addition, the agency stated in its letter that it will finalize a data collection methodology to assess cadastral survey needs by October 2016. In addition, BIA does not have an inventory of Indian resources in a format that is readily available, such as a geographic information system (GIS). Interior guidance identifies that efficient management of oil and gas resources relies, in part, on GIS mapping technology because it allows managers to easily identify resources available for lease and where leases are in effect. According to a BIA official, without a GIS component, identifying transactions such as leases and ROW agreements for Indian land and resources requires a search of paper records stored in multiple locations, which can take significant time and staff resources. For example, in response to a request from a tribal member with ownership interests in a parcel of land, BIA responded that locating the information on existing leases and ROW agreements would require that the tribal member pay $1,422 to cover approximately 48 hours of staff research time and associated costs. In addition, officials from a few Indian tribes told us that they cannot pursue development opportunities because BIA cannot provide the tribe with data on the location of their oil and gas resources—as called for in Interior’s Secretarial Order 3215. Further, in 2012, a report from the Board of Governors of the Federal Reserve System found that an inventory of Indian resources could provide a road map for expanding development opportunities. Without data to verify ownership and use of resources in a timely manner, the agency cannot ensure that Indian resources are properly accounted for or that Indian tribes and their members are able to take full advantage of development opportunities. To improve BIA’s efforts to verify ownership in a timely manner and identify resources available for development, we recommended in our June 2015 report that Interior direct BIA to take steps to complete GIS mapping capabilities. In its written comments in response to our report, Interior stated that the agency is developing and implementing applications that will supplement the data it has and provide GIS mapping capabilities, although it noted that one of these applications, the National Indian Oil and Gas Evaluation Management System (NIOGEMS), is not available nationally. Interior stated in its August 2015 letter to GAO that a national dataset composed of all Indian land tracts and boundaries with visualization functionality is expected to be completed within 4 years, depending on budget and resource availability. Second, BIA’s review and approval is required throughout the development process, including the approval of leases, ROW agreements, and appraisals, but BIA does not have a documented process or the data needed to track its review and response times. In 2014, an interagency steering committee that included Interior identified best practices to modernize federal decision-making processes through improved efficiency and transparency. The committee determined that federal agencies reviewing permits and other applications should collect consistent data, including the date the application was received, the date the application was considered complete by the agency, the issuance date, and the start and end dates for any “pauses” in the review process. The committee concluded that these dates could provide agencies with greater transparency into the process, assist agency efforts to identify process trends and drivers that influence the review process, and inform agency discussions on ways to improve the process. However, BIA does not collect the data the interagency steering committee identified as needed to ensure transparency and, therefore, it cannot provide reasonable assurance that its process is efficient. A few stakeholders we interviewed and some literature we reviewed stated that BIA’s review and approval process can be lengthy. For example, stakeholders provided examples of lease and ROW applications that were under review for multiple years. Specifically, in 2014, the Acting Chairman for the Southern Ute Indian Tribe testified before this committee that BIA’s review of some of its energy-related documents took as long as 8 years. In the meantime, the tribe estimates it lost more than $95 million in revenues it could have earned from tribal permitting fees, oil and gas severance taxes, and royalties. According to a few stakeholders and some literature we reviewed, the lengthy review process can increase development costs and project times and, in some cases, result in missed development opportunities and lost revenue. Without a documented process or the data needed to track its review and response times, BIA cannot ensure transparency into the process and that documents are moving forward in a timely manner, or determine the effectiveness of efforts to improve the process. To address this shortcoming, we recommended in our June 2015 report that Interior direct BIA to develop a documented process to track its review and response times and enhance data collection efforts to ensure that the agency has the data needed to track its review and response times. In its written comments, Interior did not fully concur with this recommendation. Specifically, Interior stated that it will use NIOGEMS to assist in tracking review and response times. However, this application does not track all realty transactions or processes and has not been deployed nationally. Therefore, while NIOGEMS may provide some assistance to the agency, it alone cannot ensure that BIA’s process to review energy-related documents is transparent or that documents are moving forward in a timely manner. In its August 2015 letter to GAO, Interior stated it will try to implement a tracking and monitoring effort by the end of fiscal year 2017 for oil and gas leases on Indian lands. The agency did not indicate if it intends to improve the transparency of its review and approval process for other energy-related documents, such as ROW agreements and surface leases—some of which were under review for multiple years. Third, some BIA regional and agency offices do not have staff with the skills needed to effectively evaluate energy-related documents or adequate staff resources, according to a few stakeholders we interviewed and some of the literature we reviewed. For instance, Interior officials told us that the number of BIA personnel trained in oil and gas development is not sufficient to meet the demands of increased development. In another example, a BIA official from an agency office told us that leases and other permits cannot be reviewed in a timely manner because the office does not have enough staff to conduct the reviews. We are conducting ongoing work for this committee that will include information on key skills and staff resources at BIA involved with the development of energy resources on Indian lands. According to stakeholders we interviewed and literature we reviewed, additional factors, generally outside of BIA’s management responsibilities, have also hindered Indian energy development, including a complex regulatory framework consisting of multiple jurisdictions that can involve significantly more steps than the development of private and state resources, increase development costs, and add to the timeline for development; fractionated, or highly divided, land and mineral ownership interests; tribes’ limited access to initial capital to start projects and limited opportunities to take advantage of federal tax credits; dual taxation of resources by states and tribes that does not occur on private, state, or federally owned resources; perceived or real concerns about the political stability and capacity of some tribal governments; and limited access to infrastructure, such as transmission lines needed to carry power generated from renewable sources to market and transportation linkages to transport oil and gas resources to processing facilities. A variety of factors have deterred tribes from pursuing TERAs. Uncertainty associated with Interior’s TERA regulations is one factor. For example, TERA regulations authorize tribes to assume responsibility for energy development activities that are not “inherently federal functions,” but Interior officials told us that the agency has not determined what activities would be considered inherently federal because doing so could have far-reaching implications throughout the federal government. According to officials from one tribe we interviewed, the tribe has repeatedly asked Interior for additional guidance on the activities that would be considered inherently federal functions under the regulations. According to the tribal officials, without additional guidance on inherently federal functions, tribes considering a TERA do not know what activities the tribe would be assuming or what efforts may be necessary to build the capacity needed to assume those activities. We recommended in our June 2015 report that Interior provide additional energy development-specific guidance on provisions of TERA regulations that tribes have identified as unclear. Additional guidance could include examples of activities that are not inherently federal in the energy development context, which could assist tribes in identifying capacity building efforts that may be needed. Interior agreed with the recommendation and stated it is considering further guidance but did not provide additional details regarding issuance of the guidance. In addition, the costs associated with assuming activities currently conducted by federal agencies and a complex application process were identified by literature we reviewed and stakeholders we interviewed as other factors that have deterred any tribe from entering into a TERA with Interior. Specifically, through a TERA, a tribe assuming control for energy development activities that are currently conducted by federal agencies does not receive federal funding for taking over the activities from the federal government. Several tribal officials we interviewed told us that the tribe does not have the resources to assume additional responsibility and liability from the federal government without some associated support from the federal government. In conclusion, our review identified a number of areas in which BIA could improve its management of Indian energy resources and enhance opportunities for greater tribal control and decision-making authority over the development of their energy resources. Interior stated it intends to take some steps to implement our recommendations, but we believe Interior needs to take additional actions to address data limitations and track its review process. We look forward to continuing to work with this committee in overseeing BIA and other federal programs to ensure that they are operating in the most effective and efficient manner. Chairman Barrasso, Ranking Member Tester, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. If you or your staff members have any questions about this testimony, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Christine Kehr (Assistant Director), Alison O’Neill, Jay Spaan, and Barbara Timmerman made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Indian energy resources hold significant potential for development, but according to a 2014 Interior document, these resources are underdeveloped relative to surrounding non-Indian resources. Development of Indian energy resources is a complex process that may involve federal, tribal, and state agencies. Interior's BIA has primary authority for managing Indian energy development and generally holds final decision-making authority for leases and other permits required for development. The Energy Policy Act of 2005 provided the opportunity for interested tribes to pursue TERAs—agreements between a tribe and Interior that allow the tribe to enter into energy leases and agreements without review and approval by Interior. However, no tribe has entered into a TERA. This testimony highlights the key findings of GAO's June 2015 report (GAO-15-502). It focuses on factors that have (1) hindered Indian energy development and (2) deterred tribes from pursuing TERAs. For the June 2015 report, GAO analyzed federal data; reviewed federal, academic, and other literature; and interviewed tribal, federal and industry stakeholders. In its June 2015 report, GAO found that Bureau of Indian Affairs' (BIA) management shortcomings and other factors—such as a complex regulatory framework, limited capital and infrastructure, and varied tribal capacity—have hindered Indian energy development. Specifically, BIA's management has the following shortcomings: BIA does not have the data it needs to verify ownership of some Indian oil and gas resources, easily identify resources available for lease, or identify where leases are in effect, as called for in Secretarial Order 3215. GAO recommended that Interior direct BIA to identify land survey needs and enhance mapping capabilities. In response, Interior stated it will develop a data collection tool to identify the extent of the survey needs in fiscal year 2016, and enhance mapping capabilities by developing a national dataset composed of all Indian land tracts and boundaries in the next 4 years. BIA's review and approval is required throughout the development process, but BIA does not have a documented process or the data needed to track its review and response times, as called for in implementation guidance for Executive Order 13604. According to a tribal official, BIA's review of some of its energy-related documents, which can include leases, right-of-way agreements, and appraisals, took as long as 8 years. In the meantime, the tribe estimates it lost more than $95 million in revenues it could have earned from tribal permitting fees, oil and gas severance taxes, and royalties. GAO recommended that Interior direct BIA to develop a documented process to track its review and response times. In response, Interior stated it will try to implement a tracking and monitoring mechanism by the end of fiscal year 2017 for oil and gas leases. However, it did not indicate whether it intends to track and monitor the review of other energy-related documents that must be approved before development can occur. Without comprehensive tracking and monitoring of its review process, it cannot ensure that documents are moving forward in a timely manner, and lengthy review times may continue to contribute to lost revenue and missed development opportunities. Some BIA regional and agency offices do not have staff with the skills needed to effectively evaluate energy-related documents or adequate staff resources. GAO is conducting ongoing work on this issue. GAO also found in its June 2015 report that a variety of factors have deterred tribes from seeking tribal energy resource agreements (TERA). These factors include uncertainty about some TERA regulations, costs associated with assuming activities historically conducted by federal agencies, and a complex application process. For instance, one tribe asked Interior for additional guidance on the activities that would be considered inherently federal functions—a provision included in Interior's regulations implementing TERA. Interior did not provide the clarification requested. Therefore, the tribe had no way of knowing what efforts may be necessary to build the capacity needed to assume those activities. GAO recommended that Interior provide clarifying guidance. In response, Interior officials stated that the agency is considering further guidance, but it did not provide a timeframe for issuance. In its June 2015 report, GAO recommended that Interior take steps to address data limitations, track its review process, and provide clarifying guidance. In an August 2015 letter to GAO after the issuance of the report, Interior generally agreed with the recommendations and identified some steps it intends to take to implement them.

The United States prefers to conduct operations as part of a coalition when possible. In prosecuting the Global War on Terrorism, the United States, through the U. S. Central Command (CENTCOM), has acted in concert with a number of other countries as part of a coalition to conduct Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom in Iraq. Most of these countries have sent officers to CENTCOM headquarters—located at MacDill Air Force Base in Tampa, Florida—to act as liaisons between their countries and CENTCOM commanders and assist in planning and other operational tasks. As coalition liaison officers began arriving to assist in Operation Enduring Freedom, CENTCOM officials established a secure area with trailers outfitted as offices for the officers to use. As the coalition expanded and Operation Iraqi Freedom started, the number of liaison officers grew, as did the need for more trailers and administrative support. CENTCOM officials initially paid for the support from Combatant Commander’s Initiative Funds earmarked for short-term initiatives identified by the commander. However, as the coalitions for both operations grew and were expected to continue into fiscal year 2003, CENTCOM requested that Congress allow the command to use funds from its budget to pay for the support provided to the liaison officers. Congress responded in the fiscal year 2003 National Defense Authorization Act by authorizing the Secretary of Defense to provide administrative services and support to those liaison officers of countries involved in a coalition with the United States and to pay the travel, subsistence, and personal expenses of those liaison officers from developing countries. This legislation expires September 30, 2005. The legislation does not direct us to assess whether it should be renewed and we did not do so. Although it is the responsibility of the Secretary of Defense to formulate general defense policy and policy related to all matters of direct and primary concern to DOD, we could find no evidence of guidance issued by DOD to combatant commanders on how to implement the legislation allowing DOD to provide support to coalition liaison officers. Also, we could not identify any office within DOD that has responsibility for implementing the legislation and, therefore, may have promulgated guidance on the legislation. Guidance for issues that affect all the components originates at the DOD level. Typically, DOD will issue a directive—a broad policy document containing what is required to initiate, govern, or regulate actions or conduct by DOD components. This directive establishes a baseline policy that applies across the combatant commands, services, and DOD agencies. DOD may also issue an instruction, which implements the policy or prescribes the manner or a specific plan or action for carrying out the policy, operating a program or activity, and assigning responsibilities. In our opinion, this guidance is important for consistent implementation of a program across DOD. To determine what guidance has been provided to the commands, we contacted offices within DOD, the Office of the Secretary of Defense, and the Joint Staff to determine which office has responsibility for implementing this legislation. After calls to the Offices of Legislative Affairs and Comptroller within the Office of the Secretary of Defense, as well as the Joint Staff’s Plans and Policy Directorate and Comptroller, neither we nor the DOD Inspector General, our focal point within DOD, were able to locate any office having this responsibility. In the data collection instrument we sent to the combatant commands, we asked whether the commands had received any guidance on how to implement the legislation. All commands replied that they had received no guidance from any office within DOD. Although the legislation was inspired by the needs of the coalition assembled for the Global War on Terrorism, its authority is available through the Secretary of Defense to all combatant commanders. However, according to the results of our research, the awareness of and need to use the legislation by combatant commands vary widely. To determine the extent to which the combatant commands are aware of and using this legislation, we created a data collection instrument and e-mailed it to representatives at each combatant command. In responding to this instrument, representatives from Northern Command, Southern Command, European Command, Transportation Command, and Strategic Command stated that they were not aware of nor did they have a need to use the legislation, while representatives of Joint Forces Command, Special Operations Command, and Pacific Command were aware of, but had no need to use, the legislation. CENTCOM and one of its subordinate commands were the only commands both aware of and using the legislation. CENTCOM is providing administrative services and support to more than 300 foreign coalition liaison officers from over 60 countries fighting the Global War on Terrorism with the United States. In addition, CENTCOM is paying travel, subsistence, and personal expenses to over 70 liaison officers from more than 30 developing countries that are included in the larger number. In the absence of guidance from the Office of the Secretary of Defense or the Joint Staff, CENTCOM officials established internal operating procedures to provide the administrative and travel related support that the foreign coalition liaison officers needed. These procedures are not written, but they are based on existing criteria defining developing countries, federal regulations governing travel, economies of scale, and what appears to be prudent fiscal management. In providing administrative services and support, CENTCOM officials determined that each country’s delegation (limited to no more than five foreign coalition liaison officers) would be provided a trailer for office space with furniture, telephone, computer, printer, copier, and shredder. Some of the smaller delegations share office space. CENTCOM pays for the furniture, shredders, copiers, telephones, and part of the custodial expense. MacDill Air Force Base, which is host to CENTCOM, pays for trailer leases, utilities, external security, and part of the custodial expense. These trailers are located on MacDill property in a fenced compound with security guards on duty. We toured some of the trailers and determined that CENTCOM was providing the space and equipment typical of a small office for the coalition officers. However, CENTCOM officials told us that some countries have spent their own funds to upgrade the office space provided. In determining how to pay the travel, subsistence, and personal expenses for coalition liaison officers from developing countries, CENTCOM officials told us they used existing criteria and federal regulations to guide their decisions. Absent a DOD or Department of State list of what would be considered developing countries, CENTCOM officials told us they use a list of countries generated by the Organization of Economic Cooperation and Development, an international organization to which the United States belongs, and defined by that organization as “Least Developed: Other Low Income and Lower Middle Income.” According to the officials, this list is recognized by the Joint Staff. To determine the appropriate amounts to provide for travel, subsistence, and personal expenses, CENTCOM officials use the Joint Federal Travel Regulations. CENTCOM officials established some basic standards for authorizing travel, subsistence, and personal expenses for the coalition liaison officers from developing countries. CENTCOM pays for one round-trip airplane ticket from an officer’s country of origin to Tampa, Florida, where CENTCOM is headquartered, and return during a tour of duty. Other trips home are at an officer’s or his or her country’s expense. Meals and incidental expenses are based on the Joint Federal Travel Regulations’ rate for Tampa ($42 per day in fiscal year 2003) paid monthly based on the number of days the officer actually spends in Tampa. CENTCOM provides housing for foreign coalition liaison officers through contracts it has negotiated with gated apartment complexes offering on-site security. Because of the number of officers needing housing (including those officers not from developing countries, who pay for their own housing), CENTCOM officials told us that they were able to negotiate rates for housing between $58 and $65 per day, which are less than Joint Federal Travel Regulations’ per diem rate for the Tampa area ($93 per day in fiscal year 2003). CENTCOM does not pay any expenses incurred for family members of the coalition liaison officer who might accompany the officer to the United States. In fiscal year 2002, the first year the coalition was formed, coalition liaison officers had to find their own housing, which was more expensive than the contracts currently in place. CENTCOM officials also told us that they rent cars for the coalition liaison officers from the General Services Administration at a cost of $350 per car per month, which is less expensive than renting from a commercial car leasing company at a cost of $750 per month. Again, because there are so many officers who require transportation, CENTCOM was able to negotiate a lower rate. Officers are allowed one car for each three members of a delegation. The officer whose name is on the car rental agreement is allowed $60 per month for gas. The officers assigned to the car must pay for any additional gas. CENTCOM and MacDill Air Force Base spent a total of almost $30 million between fiscal year 2002 and 2003 to support coalition liaison officers (see table 1). In fiscal year 2002, CENTCOM and MacDill Air Force Base spent $12.4 million to provide the administrative services and support and pay travel, subsistence, and personal expenses for the coalition liaison officers assigned to CENTCOM headquarters. The money came from Combatant Commander’s Initiative Funds and MacDill Air Force Base funds. The amount spent in fiscal year 2003—nearly $17.1 million—included $898,000 in Commander’s Initiative Funds to pay for travel, subsistence, and personal expenses, which was used until the legislation to provide support to coalition liaison officers was passed and the funds became available. The remaining amount came from CENTCOM and MacDill funds. In addition to CENTCOM, the Coalition Joint Task Force-Horn of Africa, a CENTCOM subordinate operating command, reported spending over $300,000 to provide administrative support and pay travel, subsistence, and personal expenses to 13 liaison officers assigned to the task force headquarters. No other subordinate operating command or component command reported spending funds to support coalition liaison officers. CENTCOM officials stated that this legislation has benefited the coalition by providing maximum communication and coordination for the deployment of those forces committed to fighting the Global War on Terrorism. They also stated that without the presence of the liaison officers at CENTCOM, they could not accomplish the coalition integration planning and coordination important to the Global War on Terrorism as effectively or efficiently as they are doing. CENTCOM officials stated that the legislation’s authority to pay for travel, subsistence, and personal expenses for developing countries’ liaison officers also has given the command a tool to use in negotiating with developing countries for their participation in the coalition force. DOD-wide guidance provides uniform direction throughout the department on how to implement programs and policies. While CENTCOM has developed procedures for managing support to coalition liaison officers and has taken steps to provide the support authorized by the legislation in the least costly way, in the absence of DOD-wide guidance, there can be no assurance that prudent procedures will always be followed. Moreover, without DOD guidance, should other commands choose to use the authority granted by this legislation, there is no assurance that they will implement it in a uniform and prudent manner. As of January 2004, there was no DOD office responsible for the implementation of the legislative authority allowing commands to pay for support for coalition liaison officers and no DOD-wide guidance on its use. We recommend that the Secretary of Defense take the following two actions: (1) designate an office within DOD to take responsibility for this legislation and (2) direct this designated office to promulgate and issue guidance to the combatant commands and their component and subordinate commands on how to implement this legislation. In official oral comments on a draft of this report, DOD concurred with the report. DOD stated that it would designate the Joint Staff as the office responsible for implementing the legislation and issuing appropriate guidance. We are sending copies of this report to interested congressional committees; the Secretary of Defense; and the Director, Office of Management and Budget. We will also make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions, please contact me on (757) 552-8100 or by e-mail at curtinn@gao.gov. Major contributors to this report were Steven Sternlieb, Ann Borseth, Madelon Savaides, David Mayfield, and Renee McElveen.

In the National Defense Authorization Act for Fiscal Year 2003, Congress authorized the Secretary of Defense to provide administrative services and support to foreign coalition liaison officers temporarily assigned to the headquarters of a combatant command or any of its subordinate commands. Congress required GAO to assess the implementation of this legislation. Specifically, GAO's objectives were to determine (1) what guidance the Department of Defense (DOD) has provided on the implementation of this legislation, (2) the extent to which the commands are aware of and are using this legislation, and (3) the level of support being provided by commands using this legislation and the benefits derived from it. GAO could find no evidence that DOD had issued any guidance to combatant commanders on how to implement this legislation. In addition, GAO was unable to identify an office within DOD that has responsibility for implementing this legislation. The DOD Office of the Inspector General, as GAO's focal point within DOD, was also unable to identify a responsible office. Although the legislation was inspired by the needs of the coalition assembled for the Global War on Terrorism, its authority is available through the Secretary of Defense to all combatant commanders. According to the results of GAO's research, the combatant commands' awareness of and need to use the legislation varied widely with Central Command being the only command using the authority to support liaison officers. Central Command, spent $17 million in fiscal year 2003 to provide administrative services and support to more than 300 coalition liaison officers from over 60 countries. As allowed by the legislation, the command also paid the travel, subsistence, and personal expenses of over 70 of these officers from more than 30 developing countries. Central Command officials stated that they could not accomplish the coalition integration planning and coordination important to the Global War on Terrorism as effectively or efficiently as they are doing without the liaison officers. They also commented that the legislation helps facilitate the participation of a developing country in the coalition if the command can pay for travel and subsistence.

An effective military medical surveillance system needs to collect reliable information on (1) the health care provided to service members before, during, and after deployment; (2) where and when service members were deployed; (3) environmental and occupational health threats or exposures during deployment (in theater) and appropriate protective and counter measures; and (4) baseline health status and subsequent health changes. This information is needed to monitor the overall health condition of deployed troops, inform them of potential health risks, as well as maintain and improve the health of service members and veterans. In times of conflict, a military medical surveillance system is particularly critical to ensure the deployment of a fit and healthy force and to prevent disease and injuries from degrading force capabilities. DOD needs reliable medical surveillance data to determine who is fit for deployment; to prepare service members for deployment, including providing vaccinations to protect against possible exposure to environmental and biological threats; and to treat physical and psychological conditions that resulted from deployment. DOD also uses this information to develop educational measures for service members and medical personnel to ensure that service members receive appropriate care. Reliable medical surveillance information is also critical for VA to carry out its missions. In addition to VA’s better known missions—to provide health care and benefits to veterans and medical research and education— VA has a fourth mission: to provide medical backup to DOD in times of war and civilian health care backup in the event of disasters producing mass casualties. As such, VA needs reliable medical surveillance data from DOD to treat casualties of military conflicts, provide health care to veterans who have left active duty, assist in conducting research should troops be exposed to environmental or occupational hazards, and identify service-connected disabilities and adjudicate veterans’ disability claims. Investigations into the unexplained illnesses of service members and veterans who had been deployed to the Gulf uncovered the need for DOD to implement an effective medical surveillance system to obtain comprehensive medical data on deployed service members, including Reservists and National Guardsmen. Epidemiological and health outcome studies to determine the causes of these illnesses have been hampered due to incomplete baseline health data on Gulf War veterans, their potential exposure to environmental health hazards, and specific health data on care provided before, during, and after deployment. The Presidential Advisory Committee on Gulf War Veterans’ Illnesses’ and IOM’s 1996 investigations into the causes of illnesses experienced by Gulf War veterans confirmed the need for more effective medical surveillance capabilities. The National Science and Technology Council, as tasked by the Presidential Advisory Committee, also assessed the medical surveillance system for deployed service members. In 1998, the council reported that inaccurate recordkeeping made it extremely difficult to get a clear picture of what risk factors might be responsible for Gulf War illnesses. It also reported that without reliable deployment and health assessment information, it was difficult to ensure that veterans’ service-related benefits claims were adjudicated appropriately. The council concluded that the Gulf War exposed many deficiencies in the ability to collect, maintain, and transfer accurate data describing the movement of troops, potential exposures to health risks, and medical incidents in theater. The council reported that the government’s recordkeeping capabilities were not designed to track troop and asset movements to the degree needed to determine who might have been exposed to any given environmental or wartime health hazard. The council also reported major deficiencies in health risk communications, including not adequately informing service members of the risks associated with countermeasures such as vaccines. Without this information, service members may not recognize potential side effects of these countermeasures and promptly take precautionary actions, including seeking medical care. In response to these reports, DOD strengthened its medical surveillance system under Operation Joint Endeavor when service members were deployed to Bosnia-Herzegovina, Croatia, and Hungary. In addition to implementing departmentwide medical surveillance policies, DOD developed specific medical surveillance programs to improve monitoring and tracking environmental and biomedical threats in theater. While these efforts represented important steps, a number of deficiencies remained. On the positive side, the Assistant Secretary of Defense (Health Affairs) issued a health surveillance policy for troops deploying to Bosnia. This guidance stressed the need to (1) identify health threats in theater, (2) routinely and uniformly collect and analyze information relevant to troop health, and (3) disseminate this information in a timely manner. DOD required medical units to develop weekly reports on the incidence rates of major categories of diseases and injuries during all deployments. Data from these reports showed theaterwide illness and injury trends so that preventive measures could be identified and forwarded to the theater medical command regarding abnormal trends or actions that should be taken. DOD also established the U.S. Army Center for Health Promotion and Preventive Medicine—a major enhancement to DOD’s ability to perform environmental monitoring and tracking. For example, the center operates and maintains a repository of service members’ serum samples for medical surveillance and a system to integrate, analyze, and report data from multiple sources relevant to the health and readiness of military personnel. This capability was augmented with the establishment of the 520th Theater Army Medical Laboratory—a deployable public health laboratory for providing environmental sampling and analysis in theater. The sampling results can be used to identify specific preventive measures and safeguards to be taken to protect troops from harmful exposures and to develop procedures to treat anyone exposed to health hazards. During Operation Joint Endeavor, this laboratory was used in Tuzla, Bosnia, where most of the U.S. forces were located, to conduct air, water, soil, and other environmental monitoring. Despite the department’s progress, we and others have reported on DOD’s implementation difficulties during Operation Joint Endeavor and the shortcomings in DOD’s ability to maintain reliable health information on service members. Knowledge of who is deployed and their whereabouts is critical for identifying individuals who may have been exposed to health hazards while deployed. However, in May 1997, we reported that the inaccurate information on who was deployed and where and when they were deployed—a problem during the Gulf War—continued to be a concern during Operation Joint Endeavor. For example, we found that the Defense Manpower Data Center (DMDC) database—where military services are required to report deployment information—did not include records for at least 200 Navy service members who were deployed. Conversely, the DMDC database included Air Force personnel who were never actually deployed. In addition, we reported that DOD had not developed a system for tracking the movement of service members within theater. IOM also reported that the location of service members during the deployments were still not systematically documented or archived for future use. We also reported in May 1997 that for the more than 600 Army personnel whose medical records we reviewed, DOD’s centralized database for postdeployment medical assessments did not capture 12 percent of those assessments conducted in theater and 52 percent of those conducted after returning home. These data are needed by epidemiologists and other researchers to assess at an aggregate level the changes that have occurred between service members’ pre- and postdeployment health assessments. Further, many service members’ medical records did not include complete information on in-theater postdeployment medical assessments that had been conducted. The Army’s European Surgeon General attributed missing in-theater health information to DOD’s policy of having service members hand carry paper assessment forms from the theater to their home units, where their permanent medical records were maintained. The assessments were frequently lost en route. We have also reported that not all medical encounters in theater were being recorded in individual records. Our 1997 report identified that this problem was particularly common for immunizations given in theater. Detailed data on service members’ vaccine history are vital for scheduling the regimen of vaccinations and boosters and for tracking individuals who received vaccinations from a specific lot in the event health concerns about the vaccine lot emerge. We found that almost one-fourth of the service members’ medical records that we reviewed did not document the fact that they had received a vaccine for tick-borne encephalitis. In addition, in its 2000 report, IOM cited limited progress in medical recordkeeping for deployed active duty and reserve forces and emphasized the need for records of immunizations to be included in individual medical records. Responding to our and others’ recommendations to improve information on service members’ deployments, in-theater medical encounters, and immunizations, DOD has continued to revise and expand its policies relating to medical surveillance, and the system continues to evolve. In addition, in 2000, DOD released its Force Health Protection plan, which presents its vision for protecting deployed forces. This vision emphasizes force fitness and health preparedness and improving the monitoring and surveillance of health threats in military operations. However, IOM criticized DOD’s progress in implementing its medical surveillance program and the failure to implement several recommendations that IOM had made. In addition, IOM raised concerns about DOD’s ability to achieve the vision outlined in the Force Health Protection plan. We have also reported that some of DOD’s programs designed to improve medical surveillance have not been fully implemented. IOM’s 2000 report presented the results of its assessment of DOD’s progress in implementing recommendations for improving medical surveillance made by IOM and several others. IOM stated that, although DOD generally concurred with the findings of these groups, DOD had made few concrete changes at the field level. For example, medical encounters in theater were still not always recorded in individuals’ medical records, and the locations of service members during deployments were still not systematically documented or archived for future use. In addition, environmental and medical hazards were not yet well integrated in the information provided to commanders. The IOM report notes that a major reason for this lack of progress is no single authority within DOD has been assigned responsibility for the implementation of the recommendations and plans. IOM said that because of the complexity of the tasks involved and the overlapping areas of responsibility involved, the single authority must rest with the Secretary of Defense. In its report, IOM describes six strategies that in its view demand further emphasis and require greater efforts by DOD: Use a systematic process to prospectively evaluate non-battle-related risks associated with the activities and settings of deployments. Collect and manage environmental data and personnel location, biological samples, and activity data to facilitate analysis of deployment exposures and to support clinical care and public health activities. Develop the risk assessment, risk management, and risk communications skills of military leaders at all levels. Accelerate implementation of a health surveillance system that completely spans an individual’s time in service. Implement strategies to address medically unexplained symptoms in populations that have deployed. Implement a joint computerized patient record and other automated recordkeeping that meets the information needs of those involved with individual care and military public health. DOD guidance established requirements for recording and tracking vaccinations and automating medical records for archiving and recalling medical encounters. While our work indicates that DOD has made some progress in improving its immunization information, the department faces numerous challenges in implementing an automated medical record. In October 1999, we reported that DOD’s Vaccine Adverse Event Reporting System, which relies on medical personnel or service members to provide needed vaccine data, may not have included information on adverse reactions because DOD did not adequately inform personnel on how to provide this information. Additionally, in April 2000, we testified that vaccination data were not consistently recorded in paper records and in a central database, as DOD requires. For example, when comparing records from the database with paper records at four military installations, we found that information on the number of vaccinations given to service members, the dates of the vaccinations, and the vaccine lot numbers were inconsistent at all four installations. At one installation, the database and records did not agree 78 to 92 percent of the time. DOD has begun to make progress in implementing our recommendations, including ensuring timely and accurate data in its immunization tracking system. The Gulf War revealed the need to have information technology play a bigger role in medical surveillance to ensure that the information is readily accessible to DOD and VA. In August 1997, DOD established requirements that called for the use of innovative technology, such as an automated medical record device for documenting inpatient and outpatient encounters in all settings and that can archive the information for local recall and format it for an injury, illness, and exposure surveillance database. Also, in 1997, the President, responding to deficiencies in DOD’s and VA’s data capabilities for handling service members’ health information, called for the two agencies to start developing a comprehensive, lifelong medical record for each service member. As we reported in April 2001, DOD’s and VA’s numerous databases and electronic systems for capturing mission-critical data, including health information, are not linked and information cannot be readily shared. DOD has several initiatives under way to link many of its information systems—some with VA. For example, in an effort to create a comprehensive, lifelong medical record for service members and veterans and to allow health care professionals to share clinical information, DOD and VA, along with the Indian Health Service (IHS), initiated the Government Computer-Based Patient Record (GCPR) project in 1998. GCPR is seen as yielding a number of potential benefits, including improved research and quality of care, and clinical and administrative efficiencies. However, our April 2001 report describes several factors— including planning weaknesses, competing priorities, and inadequate accountability—that made it unlikely that DOD and VA would accomplish GCPR or realize its benefits in the near future. To strengthen the management and oversight of GCPR, we made several recommendations, including designating a lead entity with a clear line of authority for the project and creating comprehensive and coordinated plans for sharing meaningful, accurate, and secure patient health data. For the near term, DOD and VA have decided to reconsider their approach to GCPR and focus on allowing VA to view DOD health data. However, under the interim effort, physicians at military medical facilities will not be able to view health information from other facilities or from VA—now a potentially critical information source given VA’s fourth mission to provide medical backup to the military health system in times of national emergency and war. Recent meetings with officials from the Defense Health Program and the Army Surgeon General’s Office indicate that the department is working on issues we have reported on in the past, including the need to improve the reliability of deployment information and the need to integrate disparate health information systems. Specifically, these officials informed us that DOD is in the process of developing a more accurate roster of deployed service members and enhancing its information technology capabilities. For example, DOD’s Theater Medical Information Program (TMIP) is intended to capture medical information on deployed personnel and link it with medical information captured in the department’s new medical information system, now being field tested. Developmental testing for TMIP is about to begin and field testing is expected to begin next spring, with deployment expected in 2003. A component system of TMIP— Transportation Command Regulating and Command and Control Evacuation System—is also under development and aims to allow casualty tracking and provide in-transit visibility of casualties during wartime and peacetime. Also under development is the Global Expeditionary Medical System, which DOD characterizes as a stepping stone to an integrated biohazard surveillance and detection system. Clearly, the need for comprehensive health information on service members and veterans is very great, and much more needs to be done. However, it is also a very difficult task because of uncertainties about what conditions may exist in a deployed setting, such as potential military conflicts, environmental hazards, and frequency of troop movements. While progress is being made, DOD will need to continue to make a concerted effort to resolve the remaining deficiencies in its surveillance system. Until such a time that some of the deficiencies are overcome, VA’s ability to perform its missions will be affected. For further information, please contact Stephen P. Backhus at (202) 512- 7101. Individuals making key contributions to this testimony included Ann Calvaresi Barr, Karen Sloan, and Keith Steck.

The Departments of Defense (DOD) and Veterans Affairs (VA) are establishing a medical surveillance system for the health care needs of military personnel and veterans. The system will collect and analyze information on deployments, environmental health threats, disease monitoring, medical assessments, and medical encounters. GAO has identified weaknesses in DOD's medical surveillance capability and performance during the Gulf War and Operation Joint Endeavor. Investigations into the unexplained illnesses of Gulf War veterans uncovered many deficiencies in DOD's ability to collect, maintain, and transfer accurate data on the movement of troops, potential exposures to health risks, and medical incidents during deployment. DOD has several initiatives under way to improve the reliability of deployment information and to enhance its information technology capabilities, though some initiatives are several years away from full implementation. The VA's ability to serve veterans and provide backup to DOD in times of war will be enhanced as DOD increases its medical surveillance capability.

Money laundering, which is the disguising or concealing of illicit income in order to make it appear legitimate, is a problem of international proportions. Federal law enforcement officials estimate that between $100 billion and $300 billion in U.S. currency is laundered each year. Numerous U.S. agencies play a role in combating money laundering. Law enforcement agencies within the Departments of Justice and the Treasury have the greatest involvement in domestic and international money-laundering investigations. FRB and OCC have the primary responsibility for examining and supervising the overseas branches of U.S. banks to ascertain the adequacy of the branches’ anti-money-laundering controls. FinCEN provides governmentwide intelligence and analysis that federal, state, local, and foreign law enforcement agencies can use to aid in the detection, investigation, and prosecution of domestic and international money laundering and other financial crimes. In addition, other U.S. agencies play a role, including the State Department, which provides information on international money laundering through its annual assessment of narcotics and money-laundering problems worldwide. Until recently, U.S. banking regulators’ anti-money-laundering efforts relied heavily on regulations requiring financial institutions to routinely report currency transactions that exceed $10,000, primarily through filing currency transaction reports (CTR) with the IRS. U.S. banking regulators have also relied on approaches in which financial institutions report financial transactions involving known or suspected money laundering.According to a senior Treasury official, U.S. regulators’ anti-money-laundering efforts in coming years are expected to rely more on the reporting of financial transactions involving known or suspected money laundering. U.S. regulators will also be expected to continue relying on CTRs, but to a lesser extent. Most U.S. banks have adopted so-called “know your customer” policies over the past few years to help them improve their identification of financial transactions involving known or suspected money laundering, according to the American Bankers Association. Under these know your customer policies, which are currently voluntary but which the Treasury plans to make mandatory in 1996, financial institutions are to verify the business of a new account holder and report any activity that is inconsistent with that type of business. According to the American Bankers Association, these policies are among the most effective means of combating money laundering, and the majority of banks have already adopted such policies. The seven European countries we visited have tended to model their anti-money-laundering measures after a 1991 European Union (EU)Directive that established requirements for financial institutions similar to those that financial institutions conducting business in the United States must follow. However, instead of relying on the routine reports of currency transactions that the United States has traditionally emphasized, European countries have tended to rely more on suspicious transaction reports and on know your customer policies. These know your customer policies are somewhat more comprehensive than comparable U.S. ones, according to European bank and regulatory officials. While Hungary and Poland have adopted anti-money-laundering measures following the EU Directive, banking and government officials in these two countries told us that the implementation and enforcement of their anti-money-laundering measures have been hindered. They attributed problems to such factors as resource shortages, inexperience in detection and prevention, and in Poland, conflicts between bank secrecy laws and recently adopted anti-money-laundering statutes. FinCEN and INTERPOL have recently initiated Project Eastwash, to attempt to assess money laundering in 20 to 30 countries throughout East and Central Europe and the former Soviet Union. According to FinCEN officials, as of late 1995 on-site visits had been made to five countries to assess the law enforcement, regulatory, legislative, and financial industry environment in each nation. Information from these visits is to be used for policy guidance and resource planning purposes for both the countries assessed and U.S. and international anti-money-laundering organizations, according to these officials. U.S. banks had over 380 overseas branches located in 68 countries as of August 1995. These branches, which are a direct extension of U.S. banks, are subject to host countries’ anti-money-laundering laws rather than U.S. anti-money-laundering laws, according to OCC and FRB officials. In some cases, U.S. banking regulators have not been allowed to perform on-site reviews of these branches’ anti-money-laundering controls. According to U.S. banking regulators, bank privacy and data protection laws in some countries serve to prevent U.S. regulators from examining U.S. bank branches located within their borders. Of the seven European countries we visited, U.S. regulators were not allowed to enter Switzerland and France to examine branches of U.S. banks because of these countries’ strict bank secrecy and data protection laws. U.S. regulators, however, have other means besides on-site examinations for obtaining information on U.S. overseas branches’ anti-money-laundering controls, according to FRB and OCC officials. For example, U.S. regulators can and do exchange information—excluding information requested for law enforcement purposes—with foreign banking regulators on their respective examinations of one another’s foreign-based branches. In addition, FRB can deny a bank’s application to open a branch in a country with strict bank secrecy laws if it does not receive assurance that the branch will have sufficient anti-money-laundering controls in place, according to FRB officials. OCC and FRB officials said that in countries that allow them to examine anti-money-laundering controls at overseas branches of U.S. banks, such examinations are of a much narrower scope than those of branches located in the United States. One reason is that host country anti-money laundering measures may not be as stringent as U.S. anti-money-laundering requirements and, thus, may not provide the necessary information for U.S. examiners. OCC and FRB officials also said that the expense of sending examiners overseas limits the amount of time examiners can spend reviewing the anti-money-laundering controls of the bank. However, according to these officials less time is needed to conduct an anti-money-laundering examination at some overseas branches because of the small volume of currency transactions. FRB officials told us that they have recently developed money-laundering examination procedures to be used by its examiners to address the uniqueness of overseas branches’ operations and to fit within the short time frames of these examinations. Although these procedures have been tested, they have not been implemented and, thus, we have not had the chance to review them. Responsibilities for investigating both domestic and international crimes involving money-laundering are assigned to numerous U.S. law enforcement agencies, including DEA, FBI, IRS, and the Customs Service. While European law enforcement officials acknowledged the important role U.S. law enforcement agencies play in criminal investigations involving money laundering, some commented about the difficulties of dealing with multiple agencies. Some British and Swiss law enforcement officials we spoke with said that too many U.S. agencies are involved in money-laundering inquiries. This overlap makes it difficult, in some money-laundering inquiries, to determine which U.S. agency they should coordinate with. These European officials indicated that designating a single U.S. office to serve as a liaison on these money-laundering cases would improve coordination. According to U.S. law enforcement agency officials, however, designating a single U.S. law enforcement agency as a focal point on overseas money-laundering cases could pose a jurisdictional problem because money-laundering cases are usually part of an overall investigation of another crime, such as drug trafficking or financial fraud. Nevertheless, U.S. law enforcement agencies have taken recent steps to address overseas money-laundering coordination. In particular, a number of U.S. agencies adopted a Memorandum of Understanding (MOU) in July 1994 on how to assign responsibility for international drug money-laundering investigations. Law enforcement officials were optimistic that the MOU, which was signed by representatives of the Secretary of the Treasury, the Attorney General, and the Postmaster General, would improve overseas anti-money-laundering coordination. Although law enforcement is optimistic about improvements in coordination, we have not assessed how well U.S. international investigations are being coordinated. The United States works with other countries through multilateral and bilateral treaties and arrangements to establish global anti-money-laundering policies, enhance cooperation, and facilitate the exchange of information on money-laundering investigations. The United States’ multilateral efforts to establish global anti-money-laundering policies occur mainly through FATF, an organization established at the 1989 economic summit meeting in Paris of major industrialized countries. The United States, through the Treasury Under Secretary for Enforcement, assumed the presidency of FATF in July 1995 for a one-year term. FATF has worked to persuade both member and nonmember countries to institute effective anti-money-laundering measures and controls. In 1990, FATF developed 40 recommendations that describe measures that countries should adopt to control money laundering through financial institutions and improve international cooperation in money-laundering investigations. During 1995, FATF completed its first round of mutual evaluations of its members’ progress on implementing the 40 recommendations. FATF found that most member countries have made satisfactory progress in carrying out the recommendations, especially in the area of establishing money-laundering controls at financial institutions. FATF has also continued to identify global money-laundering trends and techniques, including conducting surveys of Russia’s organized crime and Central and East European countries’ anti-money-laundering efforts. In addition, FATF has expanded its outreach efforts by cooperating with other international organizations, such as the International Monetary Fund, and by attempting to involve nonmember countries in Asia, South America, Russia, and other parts of the world. A more recent multilateral effort involved the United States and other countries in the Western Hemisphere. On December 9-11, 1994, the 34 democratically elected leaders of the Western Hemisphere met at the Summit of the Americas in Miami, Florida. At the summit, the leaders signed a Declaration of Principles that included a commitment to fight drug trafficking and money laundering. The summit documents also included a detailed plan of action to which the leaders affirmed their commitment. One action item called for a working-level conference on money laundering, to be followed by a ministerial conference, to study and agree on a coordinated hemispheric response to combat money laundering. The ministerial conference, held on December 1-2, 1995, at Buenos Aires, Argentina, represented the beginning of a series of actions each country committed to undertake in the legal, regulatory, and law enforcement areas. U.S. Department of Justice officials told us that these actions are designed to establish an effective anti-money-laundering program to combat money laundering on a hemispheric basis. Further, the officials told us that the conference created an awareness that money laundering is not only a law enforcement issue, but also a financial and economic issue, requiring a coordinated interagency approach. As part of another multilateral effort, FinCEN is working with other countries to develop and implement Financial Information Units (FIU) modeled, in large part, on FinCEN operations, according to FinCEN officials. FinCEN has also met with officials from other countries’ FIUs to discuss issues common to FIUs worldwide. The most recent meeting was held in Paris in November 1995, during which issue-specific working groups were created to address common concerns such as use of technology and legal matters on exchanging intelligence information. U.S. Treasury officials said that in recent years, the United States has relied on bilateral agreements to improve cooperation in international investigations, prosecutions, and forfeiture actions involving money laundering. These bilateral agreements, consisting of mutual legal assistance treaties, financial information exchange agreements, and customs mutual assistance agreements with individual countries, also help to facilitate information exchanges on criminal investigations that may involve money laundering. However, the State Department’s 1995 annual report on global narcotics crime concluded that many countries still refuse to share with other governments information about financial transactions that could facilitate global money-laundering investigations. Mr. Chairman, this concludes my prepared statement. I would be pleased to try to answer any questions you or the Committee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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GAO discussed U.S. efforts to combat money laundering abroad. GAO noted that: (1) U.S. bank regulators rely on financial institutions' reporting currency transactions that exceed $10,000, involve known or suspected money laundering, or are inconsistent with the account holder's stated business; (2) European countries focus their anti-laundering efforts less on routine currency transaction reports and more on reports of suspicious activities; (3) host countries' anti-laundering and bank privacy and protection laws, to which overseas branches of U.S. banks must adhere, sometimes hinder U.S. bank regulators' reviews of overseas branches, and examinations of overseas banks tend to be more narrowly scoped; (4) while European law enforcement officials acknowledged the important role of several U.S. law enforcement agencies in anti-laundering activities, they also indicated that it was difficult to determine which U.S. agency they should coordinate efforts with; and (5) the United States works with other countries through multilateral and bilateral treaties and arrangements to establish global anti-laundering policies, enhance cooperation, and facilitate the exchange of information on money-laundering investigations.

Between July 1985 and June 1999, we reviewed, reported, and testified on the SBIR program many times at the request of the Congress. While our work focused on many different aspects of the program, we generally found that SBIR is achieving its goals to enhance the role of small businesses in federal R&D, stimulate commercialization of research results, and support the participation of small businesses owned by women and/or disadvantaged persons. Participating agencies and companies that we surveyed during the course of our reviews generally rated the program highly. Specific examples of program success that we identified include the following: High-quality research. Throughout the life of the program, awards have been based on technical merit and are generally of good quality. For example, in 1989 we reported that according to agency officials, more than three-quarters of the research conducted with SBIR funding was as good as or better than other agency-funded research. Agency officials also rated the research as more likely than other research they oversaw to result in the invention and commercialization of new products. When we again looked at the quality of research proposals in 1995, we found that while it was too early to make a conclusive judgment about the long-term quality of the research, the quality of proposals remained good, according to agency officials. Widespread competition. The SBIR program successfully attracts many qualified companies, has had a high level of competition, and consistently has had a high number of first-time participants. Specifically, we reported that the number of proposals that agencies received each year had been increasing. In addition, as we reported in 1998, agencies rarely received only a single proposal in response to a solicitation, indicating a sustained level of competition for the awards. We also found that the agencies deemed many more proposals worthy of awards than they were able to fund. For example, the Air Force deemed 1,174 proposals worthy of awards in fiscal year 1993 but funded only 470. Moreover, from fiscal years 1993 through 1997, one third of the companies that received awards were first-time participants. This suggests that the program attracts hundreds of new companies annually. Effective outreach. SBIR agencies consistently reach out to foster participation by women-owned or socially and economically disadvantaged small businesses. For example, we found that DOD’s SBIR managers participated in a number of regional small business conferences and workshops that are specifically designed to foster increased participation by women-owned and socially and economically disadvantaged small businesses. Successful commercialization. SBIR successfully fosters commercialization of research results. At various points in the life of the program we have reported that SBIR has been successful in increasing private sector commercialization of innovations. For example, past GAO and DOD surveys of companies that received SBIR Phase II funding have determined that approximately 35 percent of the projects resulted in the sales of products or services, and approximately 45 percent of the projects received additional developmental funding. We have also reported that agencies were using various techniques to foster commercialization. For example, in an attempt to get those companies with the greatest potential for commercial success to the marketplace sooner, DOD instituted a Fast Track Program, whereby companies that are able to attract outside commitments/capital for their research during phase I are given higher priority in receiving a phase II award. Helping to serve mission needs. SBIR has helped serve agencies’ missions and R&D needs. Agencies differ in the emphasis they place on funding research to support their mission and to support more generalized research. Specifically, we found that DOD links its projects more closely to its mission. In comparison, other agencies emphasize research that will be commercialized by the private sector. Many of the projects DOD funded have specialized military applications while NIH projects have access to the biomedical market in the private sector. Moreover, we found that SBIR promotes research on the critical technologies identified in lists developed by DOD and/or the National Critical Technologies Panel. Generally agencies reviewed these listings of critical technologies to develop research topics or conducted research that fell within one of the two lists. We have also identified areas of weaknesses and made recommendations that, if addressed, could strengthen the program further. Many of our recommendations for program improvement have been either fully or partially addressed by the Congress in various reauthorizations of the program or by the agencies themselves. For example, Duplicate funding. In 1995, we identified duplicate funding for similar, or even identical, research projects by more than one agency. A few companies received funding for the same proposals two, three, and even five times before agencies became aware of the duplication. Contributing factors included the fraudulent evasion of disclosure by companies applying for awards, the lack of a consistent definition for key terms such as “similar research,” and the lack of interagency sharing of data on awards. In response to our recommendations, SBA strengthened the language agencies use in their application packages to clearly warn applicants about the illegality of entering into multiple agreements for essentially the same effort and developed Internet capabilities to access SBIR data for all of the agencies. In SBA’s view, the stronger language regarding the illegality of seeking funding for similar or identical projects addresses the need to develop consistent definitions to help agencies determine when projects are “similar.” Inconsistent interpretations of extramural research budgets. In 1998, we found that while agency officials adhered to SBIR’s program and statutory funding requirements, they used differing interpretations of how to calculate their “extramural research budgets.” As a result some agencies were inappropriately including or excluding some types of expenses. To address our recommendation that SBA provide additional guidance on how participating agencies were to calculate their extramural research budgets, the Congress in 2000 required that the agencies report annually to SBA on the methods used to calculate their extramural research budgets. Geographical concentration of awards. In 1999, in response to congressional concerns about the geographical concentration of SBIR awards, we reported that companies in a small number of states, especially California and Massachusetts, have submitted the most proposals and won the majority of awards. The distribution of awards generally followed the pattern of distribution of non-SBIR expenditures for R&D, venture capital investments, and academic research funds. We reported that some agencies had undertaken efforts to broaden the geographic distribution of awards and that the program implemented by the National Science Foundation had been particularly effective. Although we did not make any recommendations on how to improve the program’s outreach to states receiving fewer awards, in the 2000 reauthorization of the program, Congress established the Federal and State Technology Partnership Program to help strengthen the technological competitiveness of small businesses, especially in those states that receive fewer SBIR grants. Clarification on commercialization and other SBIR goals. Finally, in response to our continuing concern that clarification was needed on the relative emphasis that agencies should give to a company’s commercialization record and SBIR’s other goals when evaluating proposals, in 2000 the Congress required companies applying for a second phase award to include a commercialization plan with their SBIR proposals. This requirement partially addressed our concern. Moreover, in the spring of 2001, SBA initiated efforts to respond to our recommendation to develop standard criteria for measuring commercial and other outcomes of the SBIR program, such as uniform measures of sales and developmental funding, and incorporate these criteria into its Tech-Net database. Specifically, SBA began implementing a reporting system to measure the program’s commercialization success. In fiscal year 2002, SBA further enhanced the reporting system to include commercialization results that would help establish an initial baseline rate of commercialization. In addition, small business firms participating in the SBIR program are required to provide information annually on sales and investments associated with their SBIR projects. One issue that continues to remain somewhat unresolved after almost two decades of program implementation is how to assess the performance of the SBIR program. As the program has matured, the Congress has emphasized the potential for commercialization as an important criterion in awarding funds and the commercialization of a product as a measure of success for the program. However, in 1999, we reported that the program’s other goals also remain important to the agencies. By itself, according to some program managers, limited commercialization may not signal “failure” because a company may have achieved other goals, such as innovation or responsiveness to an agency’s research needs. We identified a variety of reasons why assessing the performance of the SBIR program has remained a challenge. First, because the authorizing legislation and SBA’s policy directives do not define the role of the company’s commercialization record in determining commercial potential and the relative importance of the program’s goals, different approaches have emerged in agencies’ evaluations of proposals. As a result, the relative weight that should be given to the program’s goals when evaluating proposals remains unclear. Innovation and responsiveness to an agency’s needs, for example, may compete with the achievement of commercialization. In the view of many program managers, innovation involves a willingness to undertake R&D with a higher element of risk and a greater chance that it may not lead to a commercial product; responsiveness to an agency’s needs involves R&D that may be aimed at special niches with limited commercial potential. Striking the right balance between achieving commercial sales and encouraging new, unproven technologies is, according to the program managers, one of the key ingredients in the program’s overall success. Second, we found that it has been difficult to find practical ways to define and measure the SBIR program’s goals in order to evaluate proposals. For example, the authorizing legislation lacks a clear definition of “commercialization,” and agencies sometimes differed on its meaning. This absence of a definition makes it more difficult to determine when a frequent winner is “failing” to achieve a sufficient level of commercialization and how to include this information in an agency’s review of the company’s proposal. Similarly, efforts to define and measure technological innovation, which was one of the program’s original goals, have posed a challenge. Although definitions vary, there is widespread agreement that technological innovation is a complex process, particularly in the development of sophisticated modern technologies. Finally, we reported that as the emphasis on commercialization had grown, so had concerns that noncommercial successes may not be adequately recognized. For example, program managers identified various projects that met special military or medical equipment needs but that had limited sales potential. These projects would be helpful in reducing the agency’s expenditures and meeting the mission of the agency but may not be appropriately captured in typical measurements of commercialization. In general, we found that program managers valued both noncommercial and commercial successes and feared that the former might be ignored in emphasizing the latter. To help evaluate the performance of the program, in the 2000 reauthorization of SBIR, Congress required SBA to develop a database that would help the agency collect and maintain in common format necessary program output and outcome information. The database is to include the following information on all phase II awards: (1) revenue from the sale of new products or services resulting from the SBIR funded research, (2) additional investment from any non-SBIR source for further research and development, and (3) any other description of outputs and outcomes of the awards. In addition, the database is to include general information for all applicants not receiving an award including an abstract of the project. In conclusion, Mr. Chairman, our work has shown that, overall, the SBIR program has been successful in meeting its goals and that the Congress and the agencies have implemented actions to strengthen the program over time. However, an assessment of the program’s results remains a challenge because of the lack of clarity on how much emphasis the program should place on commercialization versus other goals. For further information, please contact Anu Mittal at (202) 512-3841 or mittala@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Since it was established in 1982, GAO has consistently reported on the success of the Small Business Innovation Research (SBIR) program in benefiting small, innovative companies, strengthening their role in federal research and development (R&D), and helping federal agencies achieve their R&D goals. However, through these reviews GAO has also identified areas where action by participating agencies or the Congress could build on the program's successes and improve its operations. This statement for the record summarizes the program's successes and improvements over time, as well as the continuing challenge of assessing the long term results of the program. Between July 1985 and June 1999, GAO reviewed, reported, and testified on the SBIR program many times at the request of the Congress. While GAO's work focused on many different aspects of the program, it generally found that SBIR is achieving its goals to enhance the role of small businesses in federal R&D, stimulate commercialization of research results, and support the participation of small businesses owned by women and/or disadvantaged persons. Participating agencies and companies that GAO surveyed during the course of its reviews generally rated the program highly. GAO also identified areas of weaknesses and made recommendations that, if addressed, could strengthen the program further. Some of these concerns related to (1) duplicate funding for similar, or even identical, research projects by more than one agency, (2) inconsistent interpretations of extramural research budgets by participating agencies, (3) geographical concentration of awards in a small number of states, and (4) lack of clarification on the emphasis that agencies should give to a company's commercialization record when assessing its proposals. Most of GAO's recommendations for program improvement have been either fully or partially addressed by the Congress in various reauthorizations of the program or by the agencies themselves. One issue that continues to remain somewhat unresolved after almost two decades of program implementation is how to assess the performance of the SBIR program. As the program has matured, the Congress has emphasized the potential for commercialization as an important criterion in awarding funds and the commercialization of a product as a measure of success for the program. However, in 1999, GAO reported that the program's other goals also remain important to the agencies. By itself, according to some program managers, limited commercialization may not signal "failure" because a company may have achieved other goals, such as innovation or responsiveness to an agency's research needs. GAO identified a variety of reasons why assessing the performance of the SBIR program has remained a challenge. First, because the authorizing legislation and the Small Business Administration's (SBA) policy directives do not define the role of the company's commercialization record in determining commercial potential and the relative importance of the program's goals, different approaches have emerged in agencies' evaluations of proposals. Second, GAO found that it has been difficult to find practical ways to define and measure the SBIR program's goals in order to evaluate proposals. For example, the authorizing legislation lacks a clear definition of "commercialization," and agencies sometimes differed on its meaning. Finally, GAO reported that as the emphasis on commercialization had grown, so had concerns that noncommercial successes may not be adequately recognized. For example, program managers identified various projects that met special military or medical equipment needs but that had limited sales potential.

The operation of the Medicare program is extremely complex and requires close coordination between CMS and its contractors. CMS is an agency within HHS but has responsibilities for expenditures that are larger than those of most other federal departments. Under Medicare’s fee-for-service system—which accounts for over 80 percent of program beneficiaries— physicians, hospitals, and other providers submit claims to receive reimbursement for services they provide to Medicare beneficiaries. In fiscal year 2000, fee-for-service Medicare made payments of $176 billion to hundreds of thousands of providers who delivered services to over 32 million beneficiaries. About 50 Medicare claims administration contractors carry out the day-to- day operations of the program and are responsible not only for paying claims but also for providing information and education to providers and beneficiaries that participate in Medicare. Contractors that process and pay part A claims (i.e., for inpatient hospital, skilled nursing facility, hospice care, and certain home health services) are known as fiscal intermediaries and those that administer part B claims (i.e., for physician, outpatient hospital services, laboratory, and other services) are known as carriers. Contractors periodically issue bulletins that outline changes in national and local Medicare policy, inform providers of billing system changes, and address frequently asked questions. To enhance communications with providers, the agency recently required contractors to maintain toll-free telephone lines to respond to provider inquiries. It also directed them to develop Internet sites to provide another reference source. While providers look to CMS’ contractors for help in interpreting Medicare rules, they remain responsible for properly billing the program. In congressional hearings held earlier this year, representatives of physician groups testified that they felt overwhelmed by the volume of instructional materials sent to them by CMS and its contractors. Following up on these remarks, we contacted 7 group practices served by 3 carriers in different parts of the country to determine the volume of Medicare- related documents they receive from the CMS central office, carriers, other HHS agencies, and private organizations. Together, these physician practices reported that, during a 3-month period, they received about 950 documents concerned with health care regulations and billing procedures. However, a relatively small amount—about 10 percent—was sent by CMS or its contractors. The majority of the mail reportedly received by these physician practices was obtained from sources such as consulting firms and medical specialty or professional societies. Congress has also held hearings on management challenges facing the Medicare program. We recently testified that HHS contracts for claims administration services in ways that differ from procedures for most federal contracts. Specifically: there is no full and open competition for these contracts, contracts generally must cover the full range of claims processing and related activities, contracts are generally limited to reimbursement of costs without consideration of performance, and CMS has limited ability to terminate these contracts. Since 1993, HCFA has repeatedly proposed legislation that would increase competition for these contracts and provide more flexibility in how they are structured. In June 2001, the Secretary of HHS again submitted a legislative proposal that would modify Medicare’s claims administration contracting authority. CMS relies on its 20 carriers to convey accurate and timely information about Medicare rules and program changes to providers who bill the program. However, our ongoing review of the quality of CMS’ communications with physicians participating in the Medicare program shows that the information given to providers is often incomplete, confusing, out of date, or even incorrect. MRCRA provisions establish new requirements and funding for CMS and its contractors that could enhance the quality of provider communication. We found that carriers’ bulletins and Web sites did not contain clear or timely enough information to solely rely on those sources. Further, the responses to phone inquiries by carrier customer service representatives were often inaccurate, inconsistent with other information they received, or not sufficiently instructive to properly bill the program. Our review of the quarterly bulletins recently issued by 10 carriers found that they were often unclear and difficult to use. Bulletins over 50 pages in length were the norm, and some were 80 or more pages long. They often contained long articles, written in dense language and printed in small type. Many of the bulletins were also poorly organized, making it difficult for a physician to identify relevant or new information. For example, they did not always present information delineated by specialty or clearly identify the states where the policies applied. Moreover, information in these bulletins about program changes was not always communicated in a timely fashion, so that physicians sometimes had little or no advance notice prior to a program change taking effect. In a few instances, notice of the program change had not yet appeared in the carriers’ bulletin by its effective date. To provide another avenue for communication, carriers are required to develop Internet Web sites. However, our review of 10 carrier Web sites found that only 2 complied with all 11 content requirements that CMS has established. Also, most did not contain features that would allow physicians and others to readily obtain the information they need. For example, we found that the carrier Web sites often lacked logical organization, navigation tools (such as search functions), and timely information—all of which increase a site’s usability and value. Five of the nine sites that had the required schedule of upcoming workshops or seminars were out of date. Call centers supplement the information provided by bulletins and Web sites by responding to the specific questions posed by individual physicians. To assess the accuracy of information provided, we placed approximately 60 calls to the provider inquiry lines of 5 carriers’ call centers. The three test questions, all selected from the “frequently asked questions” on the carriers’ Web sites, concerned the appropriate way to bill Medicare under different circumstances. The results of our test, which were verified by a CMS coding expert, showed that only 15 percent of the answers were complete and accurate, while 53 percent were incomplete and 32 percent were entirely incorrect. We found that CMS has established few standards to guide the contractors’ communication activities. While CMS requires contractors to issue bulletins at least quarterly, they require little else in terms of content or readability. Similarly, CMS requirements for web-based communication do little to promote the clarity or timeliness of information. Instead, they generally focus on legal issues—such as measures to protect copyrighted material—that do nothing to enhance providers’ understanding of, or ability to correctly implement, Medicare policy. In regard to telecommunications, contractor call centers are instructed to monitor up to 10 calls per quarter for each of their customer service representatives, but CMS’ definition of what constitutes accuracy and completeness in call center responses is neither clear nor specific. Moreover, the assessment of accuracy and completeness counts for only 35 percent of the total assessment score, with the representative’s attitude and helpfulness accounting for the rest. CMS conducts much of its oversight of contractor performance through Contractor Performance Evaluations (CPEs). These reviews focus on contractors that have been determined to be “at risk” in certain program areas. To date, CMS has not conducted CPE reviews focusing on the quality or usefulness of contractors’ bulletins or Web sites, but has begun to focus on call center service to providers. Again, the CPE reviews of call centers focus mainly on process—such as phone etiquette—rather than on an assessment of response accuracy. CMS officials, in acknowledging that provider communications have received less support and oversight than other contractor operations, noted the lack of resources for monitoring carrier activity in this area and providing them with technical assistance. Under its tight administrative budget, the agency spends less than 2 percent of Medicare benefit payments for administrative expenses. Provider communication and education activities currently have to compete with most other contractor functions in the allocation of these scarce Medicare administrative dollars. CMS data show that there are less than 26 full-time equivalent CMS staff assigned to oversee all carrier provider relations efforts nationwide, representing a just over 1 full-time equivalent staff for each Medicare carrier. This low level of support for provider communications leads to poorly informed providers who are therefore less likely to correctly bill the Medicare program for the services they provide. Despite the scarcity of resources, CMS has begun work to expand and consolidate some provider education efforts, develop venues to obtain provider feedback, and improve the way some information is delivered. These initiatives—many in the early stages of planning or implementation—are largely national in scope, and are not strategically integrated with similar activities by contractors. Nevertheless, we believe that these outreach and education activities will enhance some physicians’ ability to obtain timely and important information, and improve their relationships with CMS. For example, CMS is working to expand and consolidate training for providers and contractor customer service representatives. Its Medlearn Web site offers providers computer-based training, manual, and reference materials, and a schedule of upcoming CMS meetings and training opportunities. CMS has produced curriculum packets and conducted in- person instruction to the contractor provider education staff to ensure contractors present more consistent training to providers. CMS has also arranged several satellite broadcasts on Medicare topics every year to hospitals and educational institutions. In addition, CMS established the Physicians’ Regulatory Issues Team to work with the physician community to address its most pressing problems with Medicare. Contractors are also required to form Provider Education and Training Advisory groups to obtain feedback on their education and communication activities. We believe that the provisions in Section 5 of MRCRA can help develop a system of information dissemination and technical assistance. MRCRA’s emphasis on contractor performance measures and the identification of best practices squarely places responsibility on CMS to upgrade its provider communications activities. For example, it calls on CMS to centrally coordinate the educational activities provided through Medicare contractors, to appoint a Medicare Provider Ombudsman, and to offer technical assistance to small providers through a demonstration program. We believe it would be prudent for CMS to implement these and related MRCRA provisions by assigning responsibility for them to a single entity within the agency dedicated to issues of provider communication. Further, MRCRA would channel additional financial resources to Medicare provider communications activities. It authorizes additional expenditures for provider education and training by Medicare contractors ($20 million over fiscal years 2003 and 2004), the small provider technical assistance demonstration program ($7 million over fiscal years 2003 and 2004), and the Medicare Provider Ombudsman ($25 million over fiscal years 2003 and 2004). This would expand specific functions within CMS’ central office, which would help to address the lack of administrative infrastructure and resources targeted to provider communications at the national level. Although we have not determined the specific amount of additional funding needed for these purposes, our work has shown that the current level of funding is insufficient to effectively inform providers about Medicare payment rules and program changes. MRCRA also establishes contractor responsibility criteria to enhance the quality of their responses to provider inquiries. Specifically, contractors must maintain a toll-free telephone number and put a system in place to identify who on their staff provides the information. They must also monitor the accuracy, consistency, and timeliness of the information provided. Current law and long-standing practice in Medicare contracting limit CMS’ options for selecting claims administration contractors and frustrate efforts to manage Medicare more effectively. We have previously identified several approaches to contracting reform that would give the program additional flexibility necessary to promote better performance and accountability among claims administration contractors. CMS faces multiple constraints in its options for selecting claims administration contractors. Under these constraints, the agency may not be able to select the best performers to carry out Medicare’s claims administration and customer service functions. Because the Medicare statute exempts CMS from competitive contracting requirements, the agency does not use full and open competition for awarding fiscal intermediary and carrier contracts. Rather, participation has been limited to entities with experience processing these types of claims, which have generally been health insurance companies. Provider associations, such as the American Hospital Association, select fiscal intermediaries in a process called “nomination” and the Secretary of HHS chooses carriers from a pool of qualified health insurers. CMS program management options are also limited by the agency’s reliance on cost-based reimbursement contracts. This type of contract reimburses contractors for necessary and proper costs of carrying out Medicare activities, but does not specifically provide for contractor profit or other incentives. As a result, CMS generally has not offered contractors the fee incentives for performance that are used in other federal contract arrangements. Medicare could benefit from various contracting reforms. Perhaps most importantly, directing the program to select contractors on a competitive basis from a broader array of entities would allow Medicare to benefit from efficiency and performance improvements related to competition. A full and open contracting process will hopefully result in the selection of stronger contractors at better value. Broadening the pool of entities allowed to hold Medicare contracts beyond health insurance companies will give CMS more contracting options. Also, authorizing Medicare to pay contractors based on how well they perform rather than simply reimbursing them for their costs could result in better contractor performance. We also believe that the program could benefit from efficiencies by having contractors perform specific functions, called functional contracting. The traditional practice of expecting a single Medicare contractor in each region to perform all claims administration functions has effectively ruled out the establishment of specialized contracts with multiple entities that have substantial expertise in certain areas. Moving to specialized contracts for the different elements of claims administration processing would allow the agency to more efficiently use its limited resources by taking advantage of the economies of scale that are inherent in some tasks. An additional benefit of centralizing carrier functioning in each area is the opportunity for CMS to more effectively oversee carrier operations. Functional contracting would also result in more consistency for Medicare-participating providers. Several key provisions of MRCRA would address these elements of contracting reform. MRCRA would establish a full and open procurement process that would provide CMS with express authority to contract with any qualified entity for claims administration, including entities that are not health insurers. MRCRA would also encourage CMS to use incentive payments to encourage quality service and efficiency. For example, a cost- plus-incentive-fee contract adjusts the level of payment based on the contractor’s performance. Finally, MRCRA would modify long-standing practice by specifically allowing for contracts limited to one component of the claims administration process, such as processing and paying claims, or conducting provider education and technical assistance activities. The scope and complexity of the Medicare program make complete, accurate, and timely communication of program information necessary to help providers comply with Medicare requirements and appropriately bill for their services. The backers of MRCRA recognize the need for more resources devoted to provider communications and outreach activities, and we believe the funding provisions in the bill will help assure that more attention is paid to these areas. MRCRA also contains provisions that would provide a statutory framework for Medicare contracting reform. We believe that CMS can benefit from this increased flexibility, and that many of these reform provisions will assist the agency in providing for more effective program management. Madam Chairman, this concludes my prepared statement. I would be happy to answer any questions that you or other Subcommittee Members may have. For further information regarding this testimony, please contact me at (312) 220-7767. Jenny Grover, Rosamond Katz, and Eric Peterson also made key contributions to this statement.

Complete, accurate, and timely communication of program information is necessary to help Medicare providers comply with program requirements and appropriately bill for their services. Information provided to physicians about billing and payment policies is often incomplete, confusing, out of date, or even incorrect. GAO found that the rules governing Centers for Medicare and Medicaid Services (CMS) contracts with its claims processors lack incentives for efficient operations. Medicare contractors are chosen without full and open competition from among health insurance companies, rather from a broad universe of potential qualified entities, and CMS almost always uses cost-only contracts, which pay contractors for costs incurred but generally do not offer any type of performance incentives. To improve Medicare contractors' provider communications, CMS must develop a more centralized and coordinated approach consistent with the provisions of the Medicare Regulatory and Contracting Reform Act (MRCRA) of 2001. MRCRA would require that CMS (1) centrally coordinate contractors' provider education activities, (2) establish communications performance standards, (3) appoint a Medicare Provider Ombudsman, and (4) create a demonstration program to offer technical assistance to small providers. MRCRA would also broaden CMS authority so that various types of contractors would be able to compete for claims administration contracts and their payment would reflect the quality of the services they provide.

the University of California had inadequate work controls at one of its laboratory facilities, resulting in eight workers being exposed to airborne plutonium and five of those workers receiving detectable intakes of plutonium. This was identified as one of the 10 worst radiological intake events in the United States in over 40 years. DOE assessed, but cannot collect, a penalty of $605,000 for these violations. University of Chicago had violated the radiation protection and quality assurance rules, leading to worker contamination and violations of controls intended to prevent an uncontrolled nuclear reaction from occurring. DOE assessed, but cannot collect, a penalty of $110,000 for these violations. DOE has cited two other reasons for continuing the exemption, but as we indicated in our 1999 report, we did not think either reason was valid: DOE said that contract provisions are a better mechanism than civil penalties for holding nonprofit contractors accountable for safe nuclear practices. We certainly agree that contract mechanisms are an important tool for holding contractors accountable, whether they earn a profit or not. However, since 1990 we have described DOE’s contracting practices as being at high risk for fraud, waste, abuse, and mismanagement. Similarly, in November 2000, the Department’s Inspector General identified contract administration as one of the most significant management challenges facing the Department. We have noted that, recently, DOE has been more aggressive in reducing contractor fees for poor performance in a number of areas. However, having a separate nuclear safety enforcement program provides DOE with an additional tool to use when needed to ensure that safe nuclear practices are followed. Eliminating the exemption enjoyed by the nonprofit contractors would strengthen this tool. DOE said that its current approach of exempting nonprofit educational institutions is consistent with Nuclear Regulatory Commission’s (NRC) treatment of nonprofit organizations because DOE issues notices of violation to nonprofit contractors without collecting penalties but can apply financial incentives or disincentives through the contract. However, NRC can and does impose monetary penalties for violations of safety requirements, without regard to the profit-making status of the organization. NRC sets lower penalty amounts for nonprofit organizations than for- profit organizations. The Secretary could do the same, but does not currently take this approach. Furthermore, both NRC and other regulatory agencies have assessed and collected penalties or additional administrative costs from some of the same organizations that DOE exempts from payment. For example, the University of California has made payments to states for violating environmental laws in California and New Mexico because of activities at Lawrence Livermore and Los Alamos National Laboratories. The enforcement program appears to be a useful and important tool for ensuring safe nuclear practices. Our 1999 review of the enforcement program found that, although it needed to be strengthened, the enforcement program complemented other contract mechanisms DOE had to help ensure safe nuclear practices. Advantages of the program include its relatively objective and independent review process, a follow-up mechanism to ensure that contractors take corrective action, and the practice of making information readily available to the contractor community and the public. Modifications to H.R. 723 Could Help Clarify and Strengthen the Penalty Provisions H.R. 723 eliminates both the exemption from paying the penalties provided by statute and the exemption allowed at the Secretary’s discretion. While addressing the main problems we discussed in our 1999 report, we have several observations about clarifications needed to the proposed bill. The “discretionary fee” referred to in the bill is unclear. H.R. 723, while eliminating the exemption, limits the amount of civil penalties that can be imposed on nonprofit contractors. This limit is the amount of "discretionary fees" paid to the contractor under the contract under which the violation occurs. The meaning of the term “discretionary fee” is unclear and might be interpreted to mean all or only a portion of the fee paid. In general, the total fee—that is, the amount that exceeds the contractor’s reimbursable costs—under DOE’s management and operating contracts consists of a base fee amount and an incentive fee amount. The base fee is set in the contract. The amount of the available incentive fee paid to the contractor is determined by the contracting officer on the basis of the contractor’s performance. Since the base fee is a set amount, and the incentive fee is determined at the contracting officer's discretion, the term “discretionary fee” may be interpreted to refer only to the incentive fee and to exclude the base fee amount. However, an alternate interpretation also is possible. Certain DOE contracts contain a provision known as the “Conditional Payment of Fee, Profit, Or Incentives” clause. Under this contract provision, on the basis of the contractor’s performance, a contractor’s entire fee, including the base fee, may be reduced at the discretion of the contracting officer. Thus, in contracts that contain this clause, the term “discretionary fee” might be read to include a base fee. If the Congress intends to have the entire fee earned be subject to penalties, we suggest that the bill language be revised to replace the term “discretionary fee” with “total amount of fees.” If, on the other hand, the Congress wants to limit the amount of fee that would be subject to penalties to the performance or incentive amount, and exclude the base fee amount, we suggest that the bill be revised to replace the term “discretionary fee” with “performance or incentive fee.” Limiting the amount of any payment for penalties made by tax-exempt contractors to the amount of the incentive fee could have unintended effects. Several potential consequences could arise by focusing only on the contractor’s incentive fee. Specifically: Contractors would be affected in an inconsistent way. Two of the nonprofit contractors—University Research Associates at the Fermi National Accelerator Laboratory and Princeton University—do not receive an incentive fee (they do receive a base fee). Therefore, depending on the interpretation of the term “discretionary fee” as discussed above, limiting payment to the amount of the incentive fee could exempt these two contractors from paying any penalty for violating nuclear safety requirements. Enforcement of nuclear safety violations would differ from enforcement of security violations. The National Defense Authorization Act for Fiscal Year 2000 established a system of civil monetary penalties for violations of DOE regulations regarding the safeguarding and security of restricted data. The legislation contained no exemption for nonprofit contractors but limited the amount of any payment for penalties made by certain nonprofit contractors to the total fees paid to the contractor in that fiscal year. In contrast, these same contractors could have only a portion of their fee (the “discretionary fee”) at risk for violations of nuclear safety requirements. It is not clear why limitations on the enforcement of nuclear safety requirements should be different than existing limitations on the enforcement of security requirements. Disincentives could be created if the Congress decides to limit the penalty payment to the amount of the incentive fee. We are concerned that contractors might try to shift more of their fee to a base or fixed fee and away from an incentive fee, in order to minimize their exposure to any financial liability. Such an action would have the effect of undermining the purpose of the penalty and DOE’s overall emphasis on performance-based contracting. In fact, recent negotiations between DOE and the University of California to extend the laboratory contracts illustrate this issue. According to the DOE contracting officer, of the total fee available to the University of California, more of the fee was shifted from incentive fee to base fee during recent negotiations because of the increased liability expected from the civil penalties associated with security violations. If a nonprofit contractor’s entire fee was subject to the civil penalty, the Secretary has discretion that should ensure that no nonprofit contractor’s assets are at risk because of having to pay the civil penalty. This is because the Secretary has considerable latitude to adjust the amount of any civil penalty to meet the circumstances of any specific situation. The Secretary can consider factors such as the contractor’s ability to pay and the effect of the penalty on the contractor’s ability to do business. Preferential treatment would be expanded to all tax-exempt contractors. Under the existing law, in addition to the seven contractors exempted by name in the statute, the Secretary was given the authority to exempt nonprofit educational institutions. H.R. 723 takes a somewhat different approach by exempting all tax-exempt nonprofit contractors whether or not they are educational institutions. This provision would actually reduce the liability faced by some contractors. For example, Brookhaven Science Associates, the contractor at Brookhaven National Laboratory, is currently subject to paying civil penalties for nuclear safety violations regardless of any fee paid because, although it is a nonprofit organization, it is not an educational institution. Under the provisions of H.R. 723, however, Brookhaven Science Associates would be able to limit its payments for civil penalties. This change would result in a more consistent application of civil penalties among nonprofit contractors. Some contractors might not be subject to the penalty provisions until many years in the future. As currently written, H.R. 723 would not apply to any violation occurring under a contract entered into before the date of the enactment of the act. Thus, contractors would have to enter into a new contract with DOE before this provision takes effect. For some contractors that could be a considerable period of time. The University of California, for example, recently negotiated a 4-year extension of its contract with DOE. It is possible, therefore, that if H.R. 723 is enacted in 2001, the University of California might not have to pay a civil penalty for any violation of nuclear safety occurring through 2005. In contrast, when the Congress set up the civil penalties in 1988, it did not require that new contracts be entered into before contractors were subject to the penalty provisions. Instead, the penalty provisions applied to the existing contracts. In reviewing the fairness of this issue as DOE prepared its implementing regulations, in 1991 DOE stated in the Federal Register that a contractor’s obligation to comply with nuclear safety requirements and its liability for penalties for violations of the requirements are independent of any contractual arrangements and cannot be modified or eliminated by the operation of a contract. Thus, DOE considered it appropriate to apply the penalties to the contracts existing at the time.

This testimony discusses GAO's views on H.R. 723, a bill that would modify the Atomic Energy Act of 1954 by changing how the Department of Energy (DOE) treats nonprofit contractors who violate DOE's nuclear safety requirements. Currently, nonprofit contractors are exempted from paying civil penalties that DOE assesses under the act. H.R. 723 would remove that exemption. GAO supports eliminating the exemption because the primary reason for instituting it no longer exists. The exemption was enacted in 1988 at the same time the civil monetary penalty was established. The purpose of the exemption was to ensure that the nonprofit contractors operating DOE laboratories who were being reimbursed only for their costs, would not have their assets at risk for violating nuclear safety requirements. However, virtually all of DOE's nonprofit contractors have an opportunity to earn a fee in addition to payments for allowable costs. This fee could be used to pay the civil monetary penalties. GAO found that DOE's nuclear safety enforcement program appears to be a useful and important tool for ensuring safe nuclear practices.

Following a yearlong study, the Commercial Activities Panel in April 2002 reported its findings on competitive sourcing in the federal government. The report lays out 10 sourcing principles and several recommendations, which provide a roadmap for improving sourcing decisions across the federal government. Overall, the new Circular is generally consistent with these principles and recommendations. The Commercial Activities Panel held 11 meetings, including three public hearings in Washington, D.C.; Indianapolis, Indiana; and San Antonio, Texas. In these hearings, the Panel heard repeatedly about the importance of competition and its central role in fostering economy, efficiency, and continuous performance improvement. Panel members heard first-hand about the current process—primarily the cost comparison process conducted under OMB Circular A-76—as well as alternatives to that process. Panel staff conducted extensive additional research, review, and analysis to supplement and evaluate the public comments. Recognizing that its mission was complex and controversial, the Panel agreed that a supermajority of two-thirds of the Panel members would have to vote for any finding or recommendation in order for it to be adopted. Importantly, the Panel unanimously agreed upon a set of 10 principles it believed should guide all administrative and legislative actions in competitive sourcing. The Panel itself used these principles to assess the government’s existing sourcing system and to develop additional recommendations. A supermajority of the Panel agreed on a package of additional recommendations. Chief among these was a recommendation that public- private competitions be conducted using the framework of the Federal Acquisition Regulation (FAR). Although a minority of the Panel did not support the package of additional recommendations, some of these Panel members indicated that they supported one or more elements of the package, such as the recommendation to encourage high-performing organizations (HPO) throughout the government. Importantly, there was a good faith effort to maximize agreement and minimize differences among Panel members. In fact, changes were made to the Panel’s report and recommendations even when it was clear that some Panel members seeking changes were highly unlikely to vote for the supplemental package of recommendations. As a result, on the basis of Panel meetings and my personal discussions with Panel members at the end of our deliberative process, I believe the major differences among Panel members were few in number and philosophical in nature. Specifically, disagreement centered primarily on (1) the recommendation related to the role of cost in the new FAR-type process, and (2) the number of times the Congress should be required to act on the new FAR-type process, including whether the Congress should authorize a pilot program to test that process for a specific time period. As I noted previously, the new A-76 Circular is generally consistent with the Commercial Activities Panel’s sourcing principles and recommendations and, as such, provides an improved foundation for competitive sourcing decisions in the federal government. In particular, the new Circular permits: greater reliance on procedures contained in the FAR, which should result in a more transparent, simpler, and consistently applied competitive process, and source selection decisions based on tradeoffs between technical factors and cost. The new Circular also suggests potential use of alternatives to the competitive sourcing process, such as public-private and public-public partnerships and high-performing organizations. It is not, however, specific as to how and when these alternatives might be used. If effectively implemented, the new Circular should result in increased savings, improved performance, and greater accountability, regardless of the service provider selected. However, this competitive sourcing initiative is a major change in the way government agencies operate, and successful implementation of the Circular’s provisions will require that adequate support be made available to federal agencies and employees, especially if the time frames called for in the new Circular are to be achieved. Implementing the new Circular A-76 will likely be challenging for many agencies. GAO’s past work on the competitive sourcing program at the Department of Defense (DOD)— as well as agencies’ efforts governmentwide to improve acquisition, human capital, and information technology management—has identified practices that have either advanced these efforts or hindered them. The lessons learned from these experiences—especially those that demonstrate best competitive sourcing practices—could prove invaluable to agencies as they implement the provisions in the new Circular. A major challenge agencies will face will be meeting a 12-month limit for completing the standard competition process in the new Circular. This provision is intended to respond to complaints from all sides about the length of time taken to conduct A-76 cost comparisons—complaints that the Panel repeatedly heard in the course of its review. OMB’s new Circular states that standard competitions shall not exceed 12 months from public announcement (start date) to performance decision (end date). Under certain conditions, there may be extensions of no more than 6 months. The new Circular also states that agencies shall complete certain preliminary planning steps before a public announcement. We welcome efforts to reduce the time required to complete these studies. Even so, our studies of DOD competitive sourcing activities have found that competitions can take much longer than the time frames outlined in the new Circular. Specifically, DOD’s most recent data indicate that competitions take on average 25 months. It is not, however, clear how much of this time was needed for any planning that may now be outside the revised Circular’s time frame. In commenting on OMB’s November 2002 draft proposal, we recommended that the time frame be extended to perhaps 15 to 18 months overall, and that OMB ensure that agencies provide sufficient resources to comply with A-76. In any case, we believe additional financial and technical support and incentives will be needed for agencies as they attempt to meet these ambitious time frames. Another provision in the new Circular that may affect the timeliness of the process is the “phased evaluation” approach—one of four approaches for making sourcing selections. Under this approach, an agency evaluates technical merit and cost in two separate phases. In the first phase, offerors may propose alternate performance standards. If the agency decides that a proposed alternate standard is desirable, it incorporates the standard into the solicitation. All offerors may then submit revised proposals in response to the new standard. In the second phase, the agency selects the offeror who meets these new standards and offers the lowest cost. While not in conflict with the principles or recommendations of the Commercial Activities Panel, the approach, if used, may prove burdensome in implementation, given the additional step involved in the solicitation. DOD has been at the forefront of federal agencies in using the A-76 process. We have tracked DOD’s progress in implementing its A-76 program since the mid-to-late-1990s and have identified a number of challenges that hold important lessons that civilian agencies should consider as they implement their own competitive sourcing initiatives. Notably: competitions took longer than initially projected, costs and resources required for the competitions were selecting and grouping functions to compete was problematic, and determining and maintaining reliable estimates of savings was difficult. DOD’s experience and our work identifying best practices suggest that several key areas will need sustained attention and communication by senior leadership as agencies plan and implement their competitive sourcing initiatives. Basing goals and decisions on sound analysis and integrating sourcing with other management initiatives. Sourcing goals and targets should contribute to mission requirements and improved performance and be based on considered research and sound analysis of past activities. Agencies should consider how competitive sourcing relates to strategic management of human capital, improved financial performance, expanded reliance on electronic government, and budget and performance integration, consistent with the President’s Management Agenda. Capturing and sharing knowledge. The competition process is ultimately about promoting innovation and creating more economical, efficient, and effective organizations. Capturing and disseminating information on lessons learned and providing sufficient guidance on how to implement policies will be essential if this is to occur. Without effectively sharing lessons learned and sufficient guidance, agencies will be challenged to implement certain A-76 requirements. For example, calculating savings that accrue from A-76 competitions, as required by the new Circular, will be difficult or may be done inconsistently across agencies without additional guidance, which will contribute to uncertainties over savings. Building and maintaining agency capacity. Conducting competitions as fairly, effectively, and efficiently as possible requires sufficient agency capacity—that is, a skilled workforce and adequate infrastructure and funding. Agencies will need to build and maintain capacity to manage competitions, to prepare the in-house most-effective organization (MEO), and to oversee the work—regardless of whether the private sector or the MEO is selected. Building this capacity will likely be a challenge, particularly for agencies that have not been heavily invested in competitive sourcing previously. An additional challenge facing agencies in managing this effort will be doing so while addressing high- risk areas, such as human capital and contract management. In this regard, GAO has listed contract management at the National Aeronautics and Space Administration, the Department of Housing and Urban Development, and the Department of Energy as an area of high risk. With a likely increase in the number of public-private competitions and the requirement to hold accountable whichever sector wins, agencies will need to ensure that they have an acquisition workforce sufficient in numbers and abilities to administer and oversee these arrangements effectively. We recently initiated work to look at how agencies are implementing their competitive sourcing programs. Our prior work on acquisition, human capital, and information technology management—in particular, our work on DOD’s efforts to implement competitive sourcing—provides a strong knowledge base from which to assess agencies’ implementation of this initiative. Finally, an important issue for implementation of the new Circular A-76 is the right of in-house competitors to appeal sourcing decisions in favor of the private sector. The Panel heard frequent complaints from federal employees and their representatives about the inequality of protest rights. While both the public and the private sectors had the right under the earlier Circular to file appeals to agency appeal boards, only the private sector had the right, if dissatisfied with the ruling of the agency appeal board, to file a bid protest at GAO or in court. Under the previous version of the Circular, both GAO and the Court of Appeals for the Federal Circuit held that federal employees and their unions were not “interested parties” with the standing to challenge the results of A-76 cost comparisons. The Panel recommended that, in the context of improving to the federal government’s process for making sourcing decisions, a way be found to level the playing field by allowing in-house entities to file a protest at GAO, as private-sector competitors have been allowed to do. The Panel also viewed the protest process as one method of ensuring accountability to assure federal workers, the private sector, and the taxpayer that the competition process is working properly. The new Circular provides a right to “contest” a standard A-76 competition decision using procedures contained in the FAR for protests within the contracting agencies. The new Circular thus abolishes the A-76 appeal board process and instead relies on the FAR-based agency-level protest process. An important legal question is whether the shift from the cost comparisons under the prior Circular to the FAR-like public-private competitions under the new one means that the in-house MEO should be eligible to file a bid protest at GAO. If the MEO is allowed to protest, there is a second question: Who will speak for the MEO and protest in its name? To ensure that our legal analysis of these questions benefits from input from everyone with a stake in this important area, GAO posted a notice in the Federal Register on June 13, seeking public comment on these and several related questions. Responses are due by July 16, and we intend to review them carefully before reaching our legal conclusion. While the new Circular provides an improved foundation for competitive sourcing decisions, implementing this initiative will undoubtedly be a significant challenge for many federal agencies. The success of the competitive sourcing program will ultimately be measured by the results achieved in terms of providing value to the taxpayer, not the size of the in- house or contractor workforce or the number of positions competed to meet arbitrary quotas. Successful implementation will require adequate technical and financial resources, as well as sustained commitment by senior leadership to establish fact-based goals, make effective decisions, achieve continuous improvement based on lessons learned, and provide ongoing communication to ensure federal workers know and believe that they will be viewed and treated as valuable assets. - - - - - Mr. Chairman, this concludes my statement. I will be happy to answer any questions you or other Members of the Committee may have. 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In May 2003, the Office of Management and Budget (OMB) issued a new Circular A-76--which sets forth the government's competitive sourcing process. Determining whether to obtain services in-house or through commercial contracts is an important economic and strategic decision for agencies, and the use of A-76 is expected to grow throughout the federal government. In the past, however, the A-76 process has been difficult to implement, and the impact on the morale of the federal workforce has been profound. Moreover, there have been concerns in both the public and private sectors about the timeliness and fairness of the process and the extent to which there is a "level playing field" for conducting public-private competitions. It was against this backdrop that the Congress enacted legislation mandating a study of the government's competitive sourcing process, which was carried out by the Commercial Activities Panel, which was chaired by the Comptroller General of the United States. This testimony focuses on how the new Circular addresses the Panel's recommendations with regard to providing a better foundation for competitive sourcing decisions, and the challenges agencies may face in implementing the new A-76. Overall, the new Circular is consistent with the principles and recommendations that the Commercial Activities Panel reported in April 2002, and should provide an improved foundation for competitive sourcing decisions in the federal government. In particular, the new Circular permits greater reliance on procedures in the Federal Acquisition Regulation--which should result in a more transparent and consistently applied competitive process--as well as source selection decisions based on tradeoffs between technical factors and cost. The new Circular also suggests potential use of alternatives to the competitive sourcing process, such as public-private and public-public partnerships and high-performing organizations. The new Circular should result in increased savings, improved performance, and greater accountability. However, this initiative is a major change in the way the government operates, and implementing the new Circular A-76 will likely be challenging for many agencies. A major challenge agencies will face will be meeting a 12-month limit for completing the standard competition process. This provision aims to respond to complaints about the length of time taken to conduct A-76 cost comparisons. However, GAO studies of competitive sourcing at the Department of Defense (DOD) have found that competitions can take much longer than 12 months. Other provisions in the new Circular may also prove burdensome in implementation. Lessons learned by DOD and other agencies as they initiate efforts to improve acquisition, human capital, and information technology management could prove invaluable as agencies implement the new A-76 provisions--especially those that demonstrate best competitive sourcing practices. Successful implementation of the Circular's provisions will also likely require additional financial and technical support and incentives.

We defined the financial services industry to include the following sectors: depository credit institutions, which include commercial banks, thrifts (savings and loan associations and savings banks), and credit unions; holdings and trusts, which include investment trusts, investment companies, and holding companies; nondepository credit institutions, which extend credit in the form of loans, include federally sponsored credit agencies, personal credit institutions, and mortgage bankers and brokers; the securities sector, which is made up of a variety of firms and organizations (e.g., broker-dealers) that bring together buyers and sellers of securities and commodities, manage investments, and offer financial advice; and the insurance sector, including carriers and insurance agents, which provides protection against financial risks to policyholders in exchange for the payment of premiums. Additionally, the financial services industry is a major source of employment in the United States. According to the EEO-1 data, the financial services firms we reviewed for this testimony, which have 100 or more staff, employed nearly 3 million people in 2004. Moreover, according to the U.S. Bureau of Labor Statistics, employment in management and professional positions in the financial services industry was expected to grow at a rate of 1.2 percent annually through 2012. Finally, a recent U.S. Census Bureau report based on data from the 2002 Economic Census stated that, between 1997 and 2002, Hispanics in the United States opened new businesses at a rate three times faster than the national average. Overall EEO-1 data do not show substantial changes in diversity at the management level and suggest that certain financial sectors are more diverse at this level than others. Figure 1 shows that overall management- level representation by minorities increased from 11.1 percent to 15.5 percent from 1993 through 2004. Specifically, African-Americans increased their representation from 5.6 percent to 6.6 percent, Asians from 2.5 percent to 4.5 percent, Hispanics from 2.8 percent to 4.0 percent and American Indians from 0.2 to 0.3 percent. Management-level representation by white women was largely unchanged at slightly more than one-third during the period, while representation by white men declined from 52.2 percent to 47.2 percent. EEO-1 data may actually overstate representation levels for minorities and white women in the most senior-level positions, such as Chief Executive Officers of large investment firms or commercial banks, because the category that captures these positions—”officials and managers”—covers all management positions. Thus, this category includes lower level positions (e.g., assistant manager of a small bank branch) that may have a higher representation of minorities and women. In 2007, EEOC plans to use a revised form for employers that divides this category into “executive/senior-level officers and managers” and “first/mid-level officials,” which could provide a more accurate picture of diversity among senior managers. As shown in figure 2, EEO-1 data also show that the depository and nondepository credit sectors, as well as the insurance sector, were somewhat more diverse at the management level than the securities and holdings and trust sectors. In 2004, minorities held 19.9 percent of management-level positions in nondepository credit institutions, such as mortgage bankers and brokers, but 12.4 percent in holdings and trusts, such as investment companies. You also asked that we collect data on the accounting industry. According to the 2004 EEO-1 data, minorities held 13.5 percent, and white women held 32.4 percent of all “officials and managers” positions in the accounting industry. Minorities’ rapid growth as a percentage of the overall U.S. population and increased global competition have convinced some financial services firms that workforce diversity is a critical business strategy. Officials from the firms with whom we spoke said that their top leadership was committed to implementing workforce diversity initiatives, but noted that they faced challenges in making such initiatives work. In particular, they cited ongoing difficulties in recruiting and retaining minority candidates and in gaining employees’ “buy-in” for diversity initiatives, especially at the middle management level. Since the mid-1990s, some financial services firms have implemented a variety of initiatives designed to recruit and retain minority and women candidates to fill key positions. Officials from several banks said that they had developed scholarship and internship programs to encourage minority students to consider careers in banking. Some firms and trade organizations have also developed partnerships with groups that represent minority professionals and with local communities to recruit candidates through events such as conferences and career fairs. To help retain minorities and women, firms have established employee networks, mentoring programs, diversity training, and leadership and career development programs. Officials from some financial services firms we contacted, as well as industry studies, noted that that financial services firms’ senior managers were involved in diversity initiatives. For example, according to an official from an investment bank, the head of the firm meets with every minority and female senior executive to discuss his or her career development. Officials from a few commercial banks said that the banks had established diversity “councils” of senior leaders to set the vision, strategy, and direction of diversity initiatives. A 2005 industry trade group study and some officials also noted that some companies were linking managers’ compensation with their progress in hiring, promoting, and retaining minority and women employees. A few firms have also developed performance indicators to measure progress in achieving diversity goals. These indicators include workforce representation, turnover, promotion of minority and women employees, and employee satisfaction survey responses. Officials from several financial services firms stated that measuring the results of diversity efforts over time was critical to the credibility of the initiatives and to justifying the investment in the resources such initiatives demanded. The financial services firms and trade organizations we contacted that had launched diversity initiatives cited a variety of challenges that may have limited the success of their efforts. First, officials said that the industry faced ongoing challenges in recruiting minority and women candidates. According to industry officials, the industry lacks a critical mass of minority employees, especially at the senior levels, to serve as role models to attract and retain other minorities. Available data on minority students enrolled in Master of Business Administration (MBA) programs suggest that the pool of minorities, a source that may feed the “pipeline” for management-level positions within the financial services industry and other industries, is relatively small. In 2000, minorities accounted for 19 percent of all students enrolled in MBA programs in accredited U.S. schools; in 2004, that student population had risen to 23 percent. Financial services firms compete for this relatively small pool not only with one another but also with firms from other industries. Evidence suggests, however, that the financial services industry may not be fully leveraging its “internal” pipeline of minority and women employees for management-level positions. As shown in figure 3, there are job categories within the financial services industry that generally have more overall workforce diversity than the “official and managers” category, particularly among minorities. For example, minorities held 22 percent of “professional” positions in the industry in 2004 as compared with 15 percent of “officials and managers” positions. According to a recent EEOC report, the professional category represented a possible pipeline of available management-level candidates. The EEOC states that the chances of minorities and women (white and minority combined) advancing from the professional category into management-level positions is lower when compared with white males. Many officials from financial services firms and industry trade groups agreed that retaining minority and women employees represented one of the biggest challenges to promoting workforce diversity. One reason they cited is that the industry, as described previously, lacks a critical mass of minority men and women, particularly in senior-level positions, to serve as role models. Without a critical mass, the officials said that minority or women employees may lack the personal connections and access to informal networks that are often necessary to navigate an organization’s culture and advance their careers. For example, an official from a commercial bank we contacted said he learned from staff interviews that African-Americans believed that they were not considered for promotion as often as others partly because they were excluded from informal employee networks needed for promotion or to promote advancement. In addition, some industry officials said that achieving “buy-in” from key employees such as middle managers could be challenging. Middle managers are particularly important to diversify institutions because they are often responsible for implementing key aspects of diversity initiatives and for explaining them to other employees. However, the officials said that middle managers may be focused on other aspects of their responsibilities, such as meeting financial performance targets, rather than the importance of implementing the organization’s diversity initiatives. Additionally, the officials said that implementing diversity initiatives represents a considerable cultural and organizational change for many middle managers and employees at all levels. An official from an investment bank told us that the bank has been reaching out to middle managers who oversee minority and women employees by, for example, instituting an “inclusive manager program.” Studies and reports, as well as interviews we conducted, suggest that minority- and women-owned businesses face challenges obtaining bank credit in conventional financial markets for several reasons, including business characteristics (e.g., small firm size) and the possibility that lenders may discriminate. Some business characteristics may also limit the ability of minority- and women-owned businesses to raise equity capital. However, some financial institutions, primarily commercial banks, have recently begun marketing their loan products and offering technical assistance to minority- and women-owned businesses. Reports and other research, as well as interviews we conducted with commercial banks, including minority-owned banks and trade groups representing minority- and women-owned businesses, highlight some of the challenges these businesses may face in obtaining commercial bank credit. For example, many minority-owned businesses are in the retail and service sectors and may have few assets to offer as collateral. Further, many of these businesses are relatively young and may not have an established credit history. Many also are relatively small and often lack technical expertise. On the other hand, some studies suggest that lenders may discriminate against minority-owned businesses. We reviewed one study that found given comparable loan applications—by African-American and Hispanic- owned firms and white-owned firms—the applications by the African- American and Hispanic-owned firms were more likely to be denied. However, assessing such alleged discrimination may be complicated by limitations in data availability. The Federal Reserve’s Regulation B, which implements the Equal Credit Opportunity Act, prohibits financial institutions from requiring information on race and gender from applicants for nonmortgage credit products. Although the regulation was initially implemented to prevent such information from being used to discriminate against certain groups, some federal financial regulators have stated that removing the prohibition would allow them to better monitor and enforce laws prohibiting discrimination in lending. Likewise, at least one bank official noted that Regulation B limited the bank’s ability to measure the success of its efforts to provide financial services to minority groups. We note that under the Home Mortgage Disclosure Act (HMDA), lenders are required to collect and report data on racial and gender characteristics of applicants for mortgage loans. Researchers have used the HMDA data to assess potential mortgage lending discrimination by financial institutions. Research also suggests that some business characteristics (e.g., limited technical expertise) that may affect the ability of many minority- and women-owned businesses to obtain bank credit, as discussed earlier, may also limit their capacity to raise equity capital. Although venture capital firms may not have traditionally invested in minority-owned businesses, a recent study suggests that firms that do focus on such entities can earn rates of return comparable to those earned on mainstream private equity investments. Officials from some financial institutions we contacted, primarily large commercial banks, told us that they are reaching out to minority- and women-owned businesses by marketing their financial products to them (including in different languages), establishing partnerships with relevant trade and community organizations, and providing technical assistance. For example, officials from some banks said that they educate potential business clients by providing technical assistance through financial workshops and seminars on various issues, such as developing a business plans and obtaining commercial bank loans. While these efforts take time and resources, the officials we spoke with indicated that their institutions recognize the benefits of tapping this growing segment of the market. Madam Chairwoman, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the Subcommittee may have. For further information about this testimony, please contact Orice M. Williams on (202) 512-8678 or at williamso@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Wesley M. Phillips, Assistant Director; Emily Chalmers; William Chatlos; Kimberly Cutright; Simin Ho; Marc Molino; Robert Pollard; LaSonya Roberts; and Bethany Widick. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

A July 2004 congressional hearing raised concerns about the lack of diversity in the financial services industry, particularly in key management positions. Some witnesses noted that these firms (e.g., banks and securities firms) had not made sufficient progress in recruiting minorities and women at the management level. Others raised concerns about the ability of minority-owned businesses to raise debt and equity capital. At the request of the House Financial Services Committee, GAO was asked to provide a report on overall trends in management-level diversity and diversity initiatives from 1993 through 2004. This testimony discusses that report and focuses on (1) what the available data show about diversity at the management level, (2) the types of initiatives that the financial services industry has taken to promote workforce diversity and the challenges involved, and (3) the ability of minority- and women-owned businesses to obtain capital and initiatives financial institutions have taken to make capital available to these businesses. For our analysis, we analyzed data from the Equal Employment Opportunity Commission (EEOC); reviewed select studies; and interviewed officials from financial services firms, trade organizations, and federal agencies. GAO makes no recommendations at this time. From 1993 through 2004, overall diversity at the management level in the financial services industry did not change substantially, but some racial/ethnic minority groups experienced more change in representation than others. EEOC data show that management-level representation by minority women and men overall increased from 11.1 percent to 15.5 percent. Specifically, African-Americans increased their representation from 5.6 percent to 6.6 percent, Asians from 2.5 percent to 4.5 percent, Hispanics from 2.8 percent to 4.0 percent, and American Indians from 0.2 percent to 0.3 percent. Financial services firms and trade groups have initiated programs to increase workforce diversity, but these initiatives face challenges. The programs include developing scholarships and internships, partnering with groups that represent minority professionals, and linking managers' compensation with their performance in promoting a diverse workforce. Some firms have developed indicators to measure progress in achieving workforce diversity. Industry officials said that among the challenges these initiatives face are recruiting and retaining minority candidates, as well as gaining the "buy-in" of key employees, such as the middle managers who are often responsible for implementing such programs. Research reports suggest that minority- and women-owned businesses have difficulty obtaining access to capital for several reasons, such as that these businesses may be concentrated in service industries and lack assets to pledge as collateral. Some studies suggest that lenders may discriminate, but proving such an allegation is complicated by the lack of available data. However, some financial institutions, primarily commercial banks, said that they have developed strategies to serve minority- and women-owned businesses. These strategies include marketing existing financial products specifically to minority and women business owners.

The Results Act is the centerpiece of a statutory framework to improve federal agencies’ management activities. The Results Act was designed to focus federal agencies’ attention from the amounts of money they spend or the size of their workloads to the results of their programs. Agencies are expected to base goals on their results-oriented missions, develop strategies for achieving their goals, and measure actual performance against the goals. The Results Act requires agencies to consult with the Congress in developing their strategic plans. This gives the Congress the opportunity to help ensure that their missions and goals are focused on results, are consistent with programs’ authorizing laws, and are reasonable in light of fiscal constraints. The products of this consultation should be clearer guidance to agencies on their missions and goals and better information to help the Congress choose among programs, consider alternative ways to achieve results, and assess how well agencies are achieving them. fiscal year 1999 budget submissions, which were due to OMB by September 8, 1997. OMB, in turn, is required to include a governmentwide performance plan in the President’s fiscal year 1999 budget submission to the Congress. As required by the Results Act, GAO reviewed agencies’ progress in implementing the act, including the prospects for agency compliance. VA’s August 15, 1997, draft strategic plan represents a significant improvement over the June 1997 draft. The latest version is clearer and easier to follow, more complete, and better organized to focus more on results and less on process. At the same time, VA has still not fully addressed some of the key elements required by the Results Act; the draft plan has a lack of goals focused on the results of VA programs for veterans and their families, such as assisting veterans in readjusting to civilian life; limited discussions of external factors beyond VA’s control that could affect its achievement of goals; a lack of program evaluations to support the development of results-oriented goals; and insufficient plans to identify and meet needs to coordinate VA programs with those of other federal agencies. The draft strategic plan, acknowledging that three of these four elements (results-oriented goals, program evaluations, and agency coordination) have not been fully addressed, does plan to address them. VA has indicated that it views strategic planning as a long-term process and intends to continue refining its strategic plan in consultation with the Congress, veterans service organizations, and other stakeholders. Another challenge for VA is to improve its financial and information technology management, so that the agency’s ongoing planning efforts under the Results Act will be based on the best possible information. VA’s draft strategic plan addresses several financial and information technology issues, such as the need for cost accounting systems for VA programs and the need to improve VA’s capital asset planning. results. VA officials indicated that, based on consultations with staff from the House and Senate Veterans’ Affairs committees, which included input from GAO, the draft strategic plan would be revised to make it clearer, more complete, and more results-oriented. The August 15, 1997, version reflects significant progress in these areas. Instead of presenting four overall goals, three of which were process-oriented, VA has reorganized its draft strategic plan into two sections. The first section, entitled “Honor, Care, and Compensate Veterans in Recognition of Their Sacrifices for America,” is intended to incorporate VA’s results-oriented strategic goals. The second section, entitled “Management Strategies,” incorporates the three other general goals, related to customer service, workforce development, and taxpayer return on investment. In addition, VA has filled significant gaps in the discussions of program goals. The largest gap in the June 1997 draft was the lack of goals for four of the five major veterans benefit programs. The current plan includes goals for each of these programs, stating them in terms of ensuring that VA benefit programs meet veterans’ needs. Finally, the reorganized draft plan increases the emphasis on results. The June 1997 draft appeared to make such process-oriented goals as improving customer service and speeding claims processing equivalent to more results-oriented goals such as improving veterans’ health care. In the August 1997 version, the process-oriented goals remain but have been placed in their own process-oriented section supplementing the plan’s results orientation. At the same time, VA believes that the process-oriented portions of the plan are important as a guide to VA’s management. It considers customer service very important because VA’s focus is on providing services to veterans and their families. The Assistant Secretary for Policy and Planning, in written comments on a draft of our July 1997 letter, stated that VA continues to believe “that processes and operations are important to serving veterans and [VA] will continue to place appropriate emphasis on the areas of customer service, workforce development, and management issues.” VA also contends that the Results Act does not preclude process-oriented goals from its strategic plan. We agree that many of the process issues VA raises are important to its efficient and effective operation and can be included in VA’s strategic plan as long as they are integrated with the plan’s primary focus on results. Perhaps the most significant deficiency in VA’s draft strategic plan, in both the June 1997 and current versions, is the lack of results-oriented goals for major VA programs, particularly for benefit programs. While discussions of goals for benefit programs have been added to the current version, they are placeholders for results-oriented goals that have not yet been developed. The general goals for 4 of the 5 the major benefit program areas—compensation and pensions, education, vocational rehabilitation, and housing credit assistance—are stated in terms of ensuring that VA is meeting the needs of veterans and their families. The objectives supporting VA’s general goal for its compensation and pension area are to (1) evaluate compensation and pension programs to determine their effectiveness in meeting the needs of veterans and their beneficiaries; and (2) modify these programs, as appropriate. For the three other major benefit program areas, the objectives suggest possible results-oriented goals and are supported by strategies aimed at evaluating and improving programs. For example, the objectives under vocational rehabilitation include increasing the number of disabled veterans who acquire and maintain suitable employment and are considered to be rehabilitated. The strategies under this objective include evaluating the vocational rehabilitation needs of eligible veterans and evaluating the effect of VA’s vocational rehabilitation program on the quality of participants’ lives. VA has noted that developing results-oriented goals will be difficult until program evaluations have been completed. Given the program evaluation time periods stated in the draft strategic plan, which calls for evaluations to continue through fiscal year 2002, results-oriented goals may not be developed for some programs for several years. Another difficulty VA has cited is that, for many VA programs, congressional statements of the program purposes and expected results are vague or nonexistent. VA officials cited VA’s medical research and insurance programs as examples of programs with unclear purposes. This is an area where VA and the Congress can make progress in further consultations. individual goals generally did not link demographic changes in the veteran population to VA’s goals. VA’s current draft has added discussions of the implications of demographic changes on VA programs. For example, VA notes that the death rate for veterans is increasing, which will lead VA to explore various options for meeting increased demands for burials in VA and state veterans’ cemeteries. Meanwhile, the goal to ensure that VA’s burial programs meet the needs of veterans and their families is accompanied by a detailed list of specific cemetery construction and land acquisition projects and by a specific target for expanding burials in state veterans’ cemeteries. The discussion of external factors related to this goal focuses on the Congress’ willingness to fund VA’s proposed projects and the cooperation of the states in participating in the State Cemetery Grants Program. What is missing in the draft is a link between the projected increase in veteran deaths and the proposed schedule of specific cemetery projects. Similarly, we recently reported that National Cemetery System strategic planning does not tie goals for expanding cemetery capacity to veterans’ mortality rates and their preferences for specific burial options. We noted that the goals in VA’s June 1997 draft strategic plan were not supported by formal program evaluations. Evaluations can be an important source of information for helping the Congress and others ensure that agency goals are valid and reasonable, providing baselines for agencies to use in developing performance measures and performance goals, and identifying factors likely to affect agency performance. As noted above, VA cites the lack of completed evaluations as a reason for not providing results-oriented goals for many of its programs. The first general goal of VA’s plan is to conduct program evaluations over a period of several years. VA plans to identify distinct programs in each of its 10 major program areas and then prioritize evaluations of these programs in consultation with the Congress, veterans’ service organizations, and other stakeholders. VA expects to complete this prioritization sometime in fiscal year 1998, complete the highest-priority evaluations by the end of fiscal year 2000, and complete at least one evaluation in each of the 10 major program areas by fiscal year 2003. In our comments on the June 1997 draft strategic plan, we noted that VA has not clearly identified the areas where its programs overlap with those of other federal agencies, nor has it coordinated its strategic planning efforts with those of other agencies. Three areas where such coordination is needed (and the relevant key federal agencies) are employment training (Department of Labor), substance abuse (departments of Education, Health and Human Services, and Housing and Urban Development), and telemedicine (Department of Defense). In addition, we noted that VA relies on other federal agencies for information; for example, VA needs service records from the Department of Defense to help determine whether veterans have service-connected disabilities and to help establish their eligibility for Montgomery G.I. Bill benefits. VA’s current draft strategic plan addresses the need to improve coordination with other federal agencies and state governments. This will involve (1) identifying overlaps and links with other federal agencies, (2) enhancing and improving communications links with other agencies, and (3) keeping state directors of veterans’ affairs and other state officials apprised of VA benefits and programs and of opportunities for collaboration and coordination. As we noted in our comments on VA’s June 1997 draft strategic plan, VA has made progress in financial management and information technology. Like other federal agencies, VA needs accurate and reliable information to support executive branch and congressional decision-making. The “Management Strategies” section of VA’s current draft strategic plan addresses some financial management and information technology issues. Since VA has identified the need to devote a portion of its strategic plan to process-oriented goals, it is appropriate that some of these goals should focus on improving its management in these areas. much of its costs were attributable to each of the benefit programs it administers. According to the plan, this system would include two cost accounting systems already in development: VHA’s Decision Support System (DSS) and VBA’s Activity Based Costing (ABC) system. Another goal in the current draft plan is to establish a VA capital policy that ensures that capital investments, including capital information technology investments, reflect the most efficient and effective use of VA’s resources. Achieving this goal involves developing a VA-wide Agency Capital Plan and establishing a VA Capital Investment Board to generate policies for capital investments and to review proposed capital investments based on VA’s mission and priorities. Still another goal is designed to address the need for VA-wide information technology management to facilitate VA’s ability to function as a unified department. Achieving of this goal involves developing a VA-wide information technology strategic plan and a portfolio of prioritized information technology capital investments. In addition, the plan calls for the promotion of crosscutting VA information technology initiatives in order to improve services to veterans. The draft plan’s discussion of information technology addresses one of the information technology issues we have identified as high-risk throughout the federal government—the year-2000 computer problem. Unless corrections are made by January 1, 2000, VA’s computers may be unable to cope with dates in 2000, which could prevent VA from making accurate and timely benefit payments to veterans. VA’s draft plan includes as a performance goal that full implementation and testing of compliant software (that is, software capable of processing dates beyond 1999) will be completed by October 1999. Mr. Chairman, this completes my testimony this morning. I would be pleased to respond to any questions you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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GAO discussed the draft strategic plan developed by the Department of Veterans Affairs (VA), pursuant to the Government Performance and Results Act of 1993. GAO noted that: (1) VA has made substantial progress in its strategic planning, based in part on consultations with the Congress; (2) however, as with many other agencies, VA's process of developing a plan that meets the requirements of the Results Act is an evolving one that will continue well after the September 30, 1997, deadline for submitting its first strategic plan to the Congress and the Office of Management and Budget (OMB); (3) the August 15, 1997, draft that VA submitted to OMB for review is an improvement over the June 1997 version, because it is easier to follow, places more emphasis on results and less on process, and fills in some major gaps in the June 1997 draft; (4) however, the latest draft strategic plan continues to lack some of the key elements expected under the Results Act; and (5) as with the June 1997 draft, the August 15, 1997, draft lacks results-oriented goals for several major VA programs, lacks a program evaluation schedule, and contains inadequately developed discussions of external factors and the need to coordinate with other federal agencies.

The Air Force’s manpower requirements are determined by individual major commands, using a number of methodologies, including manpower standards, logistical models, and crew ratios. Once approved by Air Force leadership, the results serve as the basis for authorizing military, civilian, and contractor positions in the Air Force and are entered into the Air Force’s Manpower Data System. The Air Force’s Directorate of Manpower and Organization designed the Total Force Assessment (TFA) process to assess whether the various methodologies used by the Air Force to determine manpower requirements generated sufficient manpower to accomplish two purposes: (1) meet deployment commitments should it be called on to fight two major theater wars and (2) conduct multiple small-scale contingency operations in peacetime. To assess whether the authorized manpower was adequate for the wartime scenario, the Air Force compared the authorized forces in the Manpower Data System to the deployment commitments demanded by the two major theater wars. It then calculated the effect of deploying these forces on the manpower needed to continue operations at existing airbases (i.e., in-place support forces). Demands for the deployment commitments were identified using troop deployment listsgenerated from war plans for conducting wars in Southwest and Northeast Asia. The requirements for in-place support forces were calculated using a model that adjusts manpower requirements to account for changes in the personnel needed to support ongoing Air Force operations when forces are deployed. Plans for assessing the adequacy of forces in peacetime were never finalized. The Air Force conducted only the wartime component of the assessment, not the component assessing the adequacy of its manpower in conducting multiple contingency operations in peacetime. Moreover, the wartime component of the assessment was stopped before all discrepancies were resolved and, as a result, it was not conclusive. The incompleteness and irregular timing of this and similar past assessments indicate that they have not been a high priority for the Air Force. The Total Force Assessment was not entirely implemented as planned, and as a result the Air Force cannot objectively demonstrate that it has the manpower needed to carry out the operations envisioned by DOD. Begun in May 2000, this effort was conducted, in part, to provide the Air Force with an overarching analysis of its personnel requirements in preparation for the 2001 Quadrennial Defense Review. It was to be completed by January 2001. However, as of January 2002, the Air Force had essentially completed its assessment of wartime requirements, but it had not yet begun its assessment of whether Air Force authorized personnel were sufficient to support contingency operations in peacetime. The peacetime analysis was important because it would demonstrate whether particular career fields might be overburdened in peacetime even if sufficient forces were available to meet the two-theater-war scenario. The results of the wartime analysis were somewhat inconclusive because the Air Force stopped work on the study before some discrepancies in the assessment’s results were resolved. These discrepancies occurred because the process used for the study resulted in double counting some requirements, which in turn required the Air Force to manually review results for accuracy. Air Force officials told us they discontinued further work resolving discrepancies because Air Force leadership believed there was a strong likelihood that defense guidance would be changed from the two major theater war scenario to some other scenario. Such a change would have reduced the utility of any further efforts to produce more accurate results. At the time they stopped work, Air Force officials had concluded that results were about 90 percent accurate. According to Air Force officials, the leadership of the Air Force Directorate of Manpower and Organization believed that, at that point, the assessment results showed that forces were adequate to support the wartime scenario, and these results were subsequently briefed to the chief of staff of the Air Force. At the time of our review, Air Force officials still planned to conduct the peacetime analysis, but in view of the change in defense strategy they no longer plan to complete this portion of the current assessment. Instead, the Air Force plans to revamp the TFA process. Air Force officials advised us that in the future the TFA might be streamlined and shortened in duration since Air Force leadership believes that the current assessment is too time-consuming and manpower intensive. These officials said that they had proposed that the next TFA capitalize on the modeling that was used in the most recent Quadrennial Defense Review to test whether Air Force manpower is sufficient to meet a wide range of scenarios indicated by that review. Using this new approach, Air Force officials now anticipate completing a new iteration of TFA, covering the full spectrum of conflict, by December 2002. The incomplete implementation of the TFA reflects that, to some extent, the Air Force has not placed a high priority on achieving the goals of this type of assessment, as evidenced by the long interval experienced between assessments. A forerunner to Total Force Assessment, FORSIZE, was last completed in 1995—more than 6 years ago. No FORSIZE study was conducted in 1996 or 1997 because the analytical resources needed to conduct the assessment were devoted to the 1997 Quadrennial Defense Review instead. Planning for the most recent TFA began in 1999, but efforts were impeded by other changes the Air Force was undergoing, such as the recognition that the Air Force needed forces to conduct contingency operations as well as forces to meet the wartime scenarios, a need that then had to be incorporated in TFA’s design. While these changes certainly complicated the Air Force analysis, such uncertainty and change have almost become constants within DOD. Doing without a regular, institutionalized process— on the basis of inevitable complications—denies the Air Force’s Directorate of Manpower and Organization a way to determine objectively whether it has the forces needed to carry out the defense strategy. The Air Force did not use the results from the assessment for all of the purposes it had envisioned. On the positive side, Air Force officials told us that TFA results had been useful in helping some functional managers discuss the health of their career fields in briefings to the chief of staff of the Air Force. For example, the Total Force Assessment showed that the number of active forces fell somewhat short of the numbers demanded for the wartime scenario, while the number of reserve forces exceeded demands. In some situations, functional managers were asked to consider making greater use of reserve forces if active forces were deemed insufficient. On the other hand, the Air Force did not use TFA results as anticipated to support changes in budget submissions or to influence day- to-day management of manpower assets. Officials also noted that TFA results were not used to reallocate forces among various functional managers to make the best use of available forces, although they noted that TFA was not designed to do this. As a result, TFA has not lived up to its full potential for assisting Air Force leadership in making manpower decisions that can lead to a more effective force. We believe there are two possible reasons why the Air Force did not use TFA results to the full extent expected. First, because implementation of TFA was incomplete, the results themselves are incomplete and thus may have been viewed as of limited value for supporting changes to the budget or in making day to day management decisions. For example, officials told us that, with the changes to defense guidance and deployment schedules, TFA results are now viewed as one more data source on which to base decisions. Second, because TFA has not been institutionalized and does not occur on a regular basis, its results may have been viewed as insufficient or not timely for these purposes; for example, the Air Force might not have been able to link TFA results to very formalized and regularly occurring systems like the budget. Because the Air Force cannot objectively demonstrate that it has the forces necessary to carry out the full spectrum of military operations envisioned in defense guidance, its operational risk in both wartime and peacetime may not be fully understood. Both the secretary of defense and the Congress need this information to effectively discharge their respective oversight responsibilities. Without an institutionalized process for assessing risk, which occurs on a regular basis, the Air Force has no way of knowing what mitigating actions might be warranted. On the positive side, the Air Force has identified other aspects of force management that could benefit from the results of a Total Force Assessment. However, it has not been able to capitalize on this potential because the results to date have been incomplete and irregularly obtained. By not placing a high enough priority on conducting a regularly occurring assessment and by underutilizing assessment results, the Air Force may be shortchanging itself in terms of achieving an appropriate force size and mix and in terms of fully developing the related funding requirements. To enable the Air Force to objectively demonstrate it has the forces necessary to support the spectrum of military operations envisioned in the defense strategy and to enhance force management processes, we recommend that the secretary of defense direct the secretary of the Air Force to institutionalize a Total Force Assessment process to be conducted on a regular basis with clearly articulated uses for its results. In commenting on a draft of this report, DOD concurred with our recommendation that the Air Force institutionalize TFA but took issue with some of the findings and analysis in our assessment. DOD’s concerns center around whether the Air Force implemented TFA as planned and was able to establish its ability to carry out the full spectrum of missions envisioned by the defense strategy. Our assertion that the TFA was not implemented as planned is based on the fact that the chief of staff of the Air Force tasking letter that initiated TFA and the subsequent overarching guidance written by the Air Force specified an assessment of manpower requirements for both peacetime and wartime operations. At the time of our review, the Air Force had completed the wartime portion, but had not yet addressed peacetime operations. We understand, and noted in our report, that the Air Force now expects to complete a new iteration of TFA, covering the full spectrum of conflict, by December 2002. We endorse this effort and are hopeful that it reaches fruition. It does not alter the fact, however, that the fiscal year 1999 TFA was not fully implemented as planned, and that, lacking requirements for peacetime operations, it did not objectively establish the Air Force’s ability to fully execute the defense guidance. DOD’s comments also stress that the two major theater war portion of TFA was completed and briefed to the chief of staff of the Air Force and that the results showed that the Air Force had sufficient manpower to satisfy mission requirements. Our report acknowledges these facts. We noted, however, that the numbers resulting from the assessment were somewhat inconclusive and less useful than they might have been because work on the study was discontinued before all discrepancies were resolved. As stated in our report, Air Force officials estimated that final results were about 90 percent accurate. DOD’s comments further questioned our conclusion that TFA had not capitalized as anticipated on the assessment’s results, stating that the results of TFA were used widely for initiating taskings and making decisions. Our report does not indicate that TFA results were not used at all, only that its intended potential was not realized. We were unable to document the extent to which TFA was used for tasking and decision- making because the Air Force Directorate of Manpower and Organization did not produce a final report on TFA results, and it did not establish procedures for systematically tracking issues developed from TFA data and resulting actions to resolve them. Based on information provided by Air Force officials, we did acknowledge in our report that TFA results were used by functional managers to explore increasing the use of reserve forces to mitigate shortfalls in the active forces. However, during our review Air Force officials told us that TFA results would not be used for other purposes envisioned in the initial guidance written for TFA (e.g., supporting budget submissions and for day-to-day management of manpower assets). The department’s written comments are presented in their entirety in appendix I. To evaluate whether the Air Force’s Total Force Assessment demonstrated that forces are adequate to carry out the defense strategy, we reviewed Air Force policy, guidance, and documents used in planning and conducting the assessment from calendar year 1999 through 2001. We also reviewed the assessment’s results and discussed these results with officials responsible for this analysis. These included representatives of the Air Force’s Directorate of Manpower and Organization at the Pentagon; Air Force Manpower Readiness Flight at Fort Detrick, Maryland; and the Air Force Manpower and Innovation Agency in San Antonio, Texas. We also discussed the assessment’s methodology and past assessments with these officials. We did not independently verify the underlying manpower- requirements system information that serves as the starting point for the Total Force Assessment. To determine how the Air Force used the assessment’s results, we identified its anticipated uses and discussed with Air Force officials how these results were actually used. We conducted our review from July 2001 through January 2002, in accordance with generally accepted government audit standards. We obtained comments on a draft of this report from the Department of Defense and incorporated its comments where appropriate. We are sending copies of this report to the secretary of defense and the director, Office of Management and Budget. We will also make copies available to appropriate congressional committees and to other interested parties on request. If you or your staff has any questions about this report, please call me at (202) 512-3958. Major contributors to this report were Gwendolyn R. Jaffe, James K. Mahaffey, Norman L. Jessup, Jr., and Susan K. Woodward.

The Air Force began to test the force requirements in its manpower requirements-determination process in May 2000. The defense strategy envisions simultaneously fighting two major theater wars and conducting multiple contingency operations in peacetime. The Total Force Assessment was the Air Force's first evaluation of manpower adequacy in these contexts since 1995. Because the Total Force Assessment was not implemented as planned, the Air Force cannot demonstrate that it has the forces needed to carry out the full spectrum of military operations. Although intended to examine whether authorized Air Force personnel were sufficient to meet both the wartime and peacetime scenarios, the assessment only addressed the wartime scenario and did not address the adequacy of manpower for conducting multiple contingency operations in peacetime. Air Force officials concluded that manpower was adequate to support the wartime scenario but this assessment was inconclusive because the effort was discontinued before all discrepancies in the assessment's results were resolved. Although the Air Force spent considerable time and effort conducting at least a portion of its planned assessment, it has not used the results to the extent anticipated.

PPACA required the establishment of individual health insurance exchanges, as well as small business exchanges, within each state by 2014. PPACA does not require issuers to offer plans through these exchanges, but instead generally relies on market incentives to encourage issuer participation. Issuers seeking to offer a health plan in an individual exchange or small business exchange must first have that plan approved by the exchange in the state. We previously reported that most of the largest issuers holding the majority of the market in the 2012 individual and small-group markets participated in the 2014 exchanges, although most of the numerous smaller issuers in those markets did not. In addition, some issuers that participated in the 2014 individual or small business exchanges had not participated in that respective market in 2012. While some of these issuers had previously provided coverage in other markets in 2012, other issuers were newly established through the federally supported Consumer Oriented and Operated Plans (CO-OP) program. As I mentioned above, PPACA also changed, as of 2014, how insurers determine health insurance premiums and how consumers shop for health insurance plans. As part of this, PPACA required that health plans be marketed based on information that helps consumers compare the relative value of each plan. Specifically, plans must be marketed by specific categories—including four “metal” tiers of coverage (bronze, silver, gold, and platinum)—that reflect out-of-pocket costs that may be incurred by an enrollee. These changes occurred at the same time that PPACA required the establishment of health insurance exchanges for each state, through which consumers could compare and select from among QHPs. Finally, beginning January 1, 2014, premium tax credits and cost-sharing subsidies became available under PPACA for qualified individuals who purchased QHPs sold through an exchange. In 2016, we examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in each year, markets were concentrated among a small number of issuers in most states. On average, in each state, 11 or more issuers participated in each of three types of markets—individual, small group, and large group—from 2011 through 2014. However, in most states, the 3 largest issuers in each market had at least an 80 percent share of the market during the period. (See fig. 1.) Not all issuers in the individual and small group markets participated in the exchanges in 2014, and several exchanges had fewer than 3 participating issuers. Enrollment through the exchanges was generally more concentrated among a few issuers than was true for the individual and small group markets overall in 2014. For our examination of issuer participation in the first year of the exchanges, we reported that fewer issuers participated in most state health insurance markets in 2014 compared to 2013, though exiting issuers generally had small market shares in that prior year. Specifically, we found that from 2013 to 2014, the number of issuers participating in individual markets decreased in 46 states, while fewer states’ small-group and large-group markets had decreased participation (28 and 22 states, respectively). (See fig. 2.) However, across the three types of markets, those issuers exiting each state market before 2014 generally had less than 1 percent of the market in the prior year. There were also issuers that newly entered state markets in 2014. Their market shares in 2014 varied across the three types of markets, with some newly entering issuers in the individual market capturing a market share of over 10 percent. Most newly entering issuers in 2014 participated in the exchanges and they generally had a larger share of the enrollment sold through the exchanges than through the overall markets. In addition, some newly entering issuers captured a majority of their exchange market, with CO-OPs having a higher proportion. Since 2014, there have been additional changes to the number of issuers entering and exiting the individual and small group markets. For example, most of the CO-OPs that offered coverage in the exchanges in 2014 have since discontinued offering coverage. In addition, in an analysis of data from exchanges in states that used the FFE and state-based exchanges, where available, HHS has since reported that the number of issuers offering health plans through the exchanges decreased from 2016 to 2017, reflecting multi-state withdrawals by a few large insurers. In 2015, we reported that individual market consumers generally had access to more health plans in 2015—a year after the initial implementation of key PPACA provisions—than in 2014. Consumers in most of the counties analyzed in the 28 states for which we had sufficiently reliable data for plans offered either on or off an exchange had six or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold) in both 2014 and 2015. The percentage of counties with six or more plans in those metal tiers increased from 2014 to 2015. Specifically, in 2014, six or more bronze-, silver-, and gold-tier plans were available to consumers in the individual market (either on or off an exchange) in at least 95 percent of the 1,886 counties and were available on an exchange in at least 59 percent of the 2,613 of the counties for which we had sufficiently reliable data for plans offered on an exchange. In 2015, the percentage of these same counties with six or more bronze-, silver-, and gold-tier plans available in the individual market increased to 100 percent, and at least 71 percent had six or more of these plans available on an exchange. (See table 1.) In our 2015 report, we also found that premiums varied among states and counties, the lowest cost plans were typically available on an exchange, and in most states premiums increased from 2014 to 2015. Specifically, we found that: The range of premiums available to consumers in 2014 and 2015 varied among the states and counties we analyzed. For example, in Arizona, the premium for the lowest-cost silver plan option for a 30- year-old in 2015 was $147 per month, but in Maine, the lowest-cost silver plan for a 30-year-old in 2015 was $237. We also found that the range of premiums—from the lowest to highest cost—differed considerably by state. For example, in Rhode Island, 2015 premiums for silver plans available to a 30-year-old either on or off an exchange ranged from a low of $217 per month to a high of $285 per month, a difference of 32 percent. By contrast, in Arizona, 2015 premiums for these plans ranged from a low of $147 per month to a high of $545 per month, a difference of 270 percent. The lowest cost plans were typically available on an exchange. Specifically, in both years, taking into account plans available through an exchange and those only available off an exchange, the lowest cost plans were available through an exchange in most of the 1,886 counties we analyzed in the 28 states. In most states, the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. For example, in the 28 states included in our analysis, from 2014 to 2015 the minimum premiums for silver plans available to a 30-year-old increased in 18 states, decreased in 9 states, and remained unchanged in 1 state. At the county level, we found that premiums for the lowest cost silver option available for a 30-year-old increased by 5 percent or more in 51 percent of the counties in the 28 states. While our 2015 report examining the numbers of health plans and ranges of health plan premiums available to individuals in 2014 and 2015 was our most recent examination of these two issues, HHS has examined more recent data. For example, in 2016, HHS reported that despite a decline in the number of issuers participating in the FFE from 2016 to 2017, all consumers were able to choose among various plan options for 2017, although the options for about 21 percent of consumers were among choices of plans offered by a single insurer. HHS also conducted analyses focused on the premiums for the second-lowest cost silver plan in states that used the FFE and estimated that average premiums for these plans increased more between 2016 and 2017 (25 percent) than in previous years (2 percent between 2014 and 2015, and 7 percent between 2015 and 2016). In 2016, we reported that most enrollees who obtained their coverage through the health insurance exchanges were satisfied overall with their QHP during the first few years that exchanges operated, according to national surveys of QHP enrollees. For example, most QHP enrollees who obtained their coverage through the exchanges reported overall satisfaction with their plans in 2014 through 2016, according to three national surveys that asked this question. One survey found that most 2015 enrollees re-enrolled in 2016 with the same insurer, and often with the same plan offered by that insurer, and another survey reported that most re-enrollees expressed satisfaction with their QHP. The surveys reported that QHP enrollees' satisfaction with their plans was either somewhat lower than, or was similar to, that of those enrolled in employer-sponsored health insurance in 2015 and 2016. To varying degrees, QHP enrollees expressed satisfaction with specific aspects of their plan, including their coverage and choice of providers, and with plan affordability. We also interviewed stakeholders—including experts, state departments of insurance, and others—and reviewed literature for our 2016 report. These interviews and the literature revealed some concerns about QHP enrollee experiences that were similar to longstanding concerns in the private health insurance market. For example, according to these experts, some enrollees found it too expensive to pay for their out-of-pocket expenses before reaching their deductibles and have reported concerns about affording care or have been deterred from seeking care. Some enrollees have also faced difficulties understanding their QHP's coverage terminology and others have faced problems accessing care after enrollment, according to stakeholders and literature we reviewed. Chairman Jordan, Ranking Member Krishnamoorthi, and Members of the Subcommittee, this concludes my statement. I look forward to answering any questions that you may have. For questions about this statement, please contact John E. Dicken at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include John E. Dicken, Director; Gerardine Brennan and William Hadley, Assistant Directors; and Kristen J. Anderson, LaKendra Beard, Sandra George, and Laurie Pachter. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

PPACA contained provisions, many of which took effect in 2014, that could affect how issuers determine health insurance coverage and premiums and how they market their plans. For example, PPACA prohibits issuers from denying coverage or varying premiums based on consumer health status or gender. PPACA also requires health plans to generally be marketed based on metal tiers (bronze, silver, gold, and platinum), which allows consumers to compare the relative value of each plan. It also required the establishment of health insurance exchanges in each state, through which consumers can compare and select from among participating health plans. This testimony describes (1) private health-insurance market concentration and issuer participation from 2011 through 2014, the year by which key PPACA provisions took effect, (2) health plans and premiums available to individuals in 2014 and 2015, and (3) the experience of enrollees that obtained coverage through the exchanges from 2014 through 2016. It is based on three GAO reports issued in 2015 and 2016. For these reports, GAO examined data from the Centers for Medicare & Medicaid Services (CMS); reviewed published research; and interviewed stakeholders, including experts and officials from CMS and five states—Colorado, Indiana, Montana, North Carolina, and Vermont—that varied in geography and whether the state or CMS offered the exchange. GAO issued three reports in 2015 and 2016 on the early impact of the Patient Protection and Affordable Care Act (PPACA) on private health insurance markets. Market Concentration In a 2016 report, GAO examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in all years analyzed, markets were concentrated among a small number of issuers in most states. Beginning in 2014, enrollment in PPACA exchange plans was generally more concentrated among a few issuers than was true for the overall markets. Plan Availability and Premiums In a 2015 report, GAO examined the availability of health plans for individual market consumers and found that they generally had access to more health plans in 2015 than in 2014. In both years, most consumers in 28 states for which GAO had sufficiently reliable data had 6 or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold). The range of premiums available to consumers varied considerably by state, and in most states the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. In both years, the lowest cost plans were typically available on an exchange. More recent analyses by the Department of Health and Human Services found that in 2017 all consumers continued to have multiple plan options, and that premiums for exchange plans increased more in 2017 compared to the annual increases for these plans since 2014. Enrollee Experiences In a 2016 report, GAO examined national survey data to examine satisfaction of exchange enrollees. GAO found that, from 2014 through 2016, most enrollees who obtained their coverage through an exchange reported being satisfied overall with their plans. In 2015 and 2016, the satisfaction that exchange enrollees reported with their plans was either somewhat lower than or similar to that of enrollees in employer-sponsored plans. Exchange enrollees reported varying degrees of satisfaction with specific aspects of their plans, including coverage and plan affordability. Stakeholders GAO interviewed and literature GAO reviewed revealed some concerns about exchange enrollee experiences that were generally consistent with longstanding concerns in the private health insurance market—including concerns about affordability of out-of-pocket expenses and difficulties understanding coverage terminology.

Our work has identified several challenges related to U.S. efforts in Afghanistan. Among those we highlighted in our 2013 key issues report are a dangerous security environment, the prevalence of corruption, and the limited capacity of the Afghan government to deliver services and sustain donor funded projects. Dangerous security environment. Afghanistan’s security environment continues to challenge the efforts of the Afghan government and international community. This is a key issue that we noted in 2007 when we reported that deteriorating security was an obstacle to the U.S. government’s major areas of focus in Afghanistan.2009, the U.S. and coalition partners deployed additional troops to disrupt and defeat extremists in Afghanistan. While the security situation in Afghanistan has improved, as measured by enemy- In December initiated attacks on U.S. and coalition forces, Afghan security forces, and non-combatants, including Afghan civilians, the number of daily enemy-initiated attacks remains relatively high compared to the number of such attacks before 2009. In 2012, attacks on ANSF surpassed attacks on U.S. and coalition forces (see fig. 2). Prevalence of corruption in Afghanistan. Corruption in Afghanistan continues to undermine security and Afghan citizens’ belief in their government and has raised concerns about the effective and efficient use of U.S. funds. We noted in 2009 that according to the Afghan National Development Strategy pervasive corruption exacerbated the Afghan government’s capacity problems and that the sudden influx of donor money into a system already suffering from poor procurement practices had increased the risk of corruption and waste of resources. According to Transparency International’s 2013 Corruption Perception Index, Afghanistan is ranked at the bottom of countries worldwide. In February 2014, the Afghan President dissolved the Afghan Public Protection Force which was responsible for providing security intended to protect people, infrastructure, facilities, and construction projects. DOD had reported major corruption concerns within the Afghan Public Protection Force. Limited Afghan capacity. While we have reported that the Afghan government has increased its generation of revenue, it remains heavily reliant on the United States and other international donors to fund its public expenditures and continued reconstruction efforts. In 2011, we reported that Afghanistan’s domestic revenues funded only about 10 percent of its estimated total public expenditures. We have repeatedly raised concerns about Afghanistan’s inability to sustain and maintain donor funded projects and programs, putting U.S. investments over the last decade at risk. DOD reported in November 2013 that Afghanistan remains donor dependent. These persistent challenges are likely to play an even larger role in U.S. efforts within Afghanistan as combat forces continue to withdraw through the end of 2014. The United States, along with the international community, has focused its efforts in areas such as building the capacity of Afghan ministries to govern and deliver services, developing Afghanistan’s infrastructure and economy, and developing and sustaining ANSF. In multiple reviews of these efforts, we have identified numerous shortcomings and have made recommendations to the agencies to take corrective actions related to (1) mitigating against the risk of providing direct assistance to the Afghan government, (2) oversight and accountability of U.S. development projects, and (3) estimating the future costs of ANSF. In 2010, the United States pledged to provide at least 50 percent of its development aid directly through the Afghan government budget within 2 years. This direct assistance was intended to help develop the capacity of Afghan government ministries to manage programs and funds. In the first year of the pledge, through bilateral agreements and multilateral trust funds, the United States more than tripled its direct assistance awards to Afghanistan, growing from over $470 million in fiscal year 2009 to over $1.4 billion in fiscal year 2010. For fiscal year 2013 USAID provided about $900 million of its Afghanistan mission funds in direct assistance. In 2011 and 2013, we reported that while USAID had established and generally complied with various financial and other controls in its direct assistance agreements, it had not always assessed the risks in providing direct assistance before awarding funds. Although USAID has taken some steps in response to our recommendations to help ensure the accountability of direct assistance funds provided to the Afghan government, we have subsequently learned from a Special Inspector General for Afghanistan Reconstruction (SIGAR) report that USAID may have approved direct assistance to some Afghan ministries without mitigating all identified risks. Since 2002, U.S. agencies have allocated over $23 billion dollars towards governance and development projects in Afghanistan through USAID, DOD, and State. The agencies have undertaken thousands of development activities in Afghanistan through multiple programs and funding accounts. We have previously reported on systemic weaknesses in the monitoring and evaluation of U.S. development projects as well as the need for a comprehensive shared database that would account for all U.S. development efforts in Afghanistan (see table 1). With respect to monitoring and evaluation, although USAID collected progress reports from implementing partners for agriculture and water projects, our past work found that it did not always analyze and interpret project performance data to inform future decisions. USAID has undertaken some efforts in response to our recommendations to improve its monitoring and evaluation of the billions of dollars invested toward development projects in Afghanistan. We and other oversight agencies, however, have learned that USAID continued to apply performance management procedures inconsistently, fell short in maintaining institutional knowledge, and still needed to strengthen its oversight of contractors. For example, in February 2014, we reported that USAID identified improvements needed in its oversight and management of contractors in Afghanistan, including increasing the submission of contractor performance evaluations. We also found that USAID may have missed opportunities to leverage its institutional knowledge, and have recently recommended that USAID further assess its procedures and practices related to contingency contracting. GAO, Afghanistan Reconstruction: Progress Made in Constructing Roads, but Assessments for Determining Impact and a Sustainable Maintenance Program Are Needed, GAO-08-689 (Washington, D.C.: July 8, 2008). comprehensive database of U.S. development projects in Afghanistan in 2012, we suggested that Congress consider requiring U.S. agencies to report information in a shared comprehensive database. Since 2002, the United States, with assistance from coalition nations, has worked to build, train, and equip ANSF so that the Afghan government could lead the security effort in Afghanistan. U.S. agencies have allocated over $62 billion to support Afghanistan’s security, including efforts to build and sustain ANSF, from fiscal years 2002 through 2013. This has been the largest portion of U.S. assistance in Afghanistan. The United States and the international community have pledged to continue to assist in financing the sustainment of ANSF beyond 2014. In April 2012, we reported concerns regarding the need to be transparent in disclosing the long-term cost of sustaining ANSF beyond 2014. DOD initially objected to such disclosure noting that ANSF cost estimates depend on a constantly changing operational environment and that it provided annual cost information to Congress through briefings and testimonies. Our analysis of DOD data estimates that the cost of continuing to support ANSF from 2014 through 2017 will be over $18 billion, raising concerns about ANSF’s sustainability. Furthermore, we reported that on the basis of projections of U.S. and other donor support for ANSF, that there will be an estimated gap each year of $600 million from 2015 through 2017 between ANSF costs and donor pledges if additional contributions are not made. We previously noted in 2005 and 2008 that DOD should report to Congress about the estimated long-term cost to sustain ANSF.Congress mandated that DOD take such steps. In 2012, we once again In 2008, reported that DOD had not provided estimates of the long-term ANSF costs to Congress. Subsequently, in a November 2013 report to Congress on its efforts in Afghanistan, DOD included a section on the budget for ANSF and reported the expected size of ANSF to be 230,000 with an estimated annual budget of $4.1 billion. In February 2013, we reported that while the circumstances in Iraq differ from those in Afghanistan, potential lessons could be learned from the transition from a military to civilian-led presence to avoid possible missteps and better utilize resources. As we have reported, contingency planning is critical to a successful transition and to ensuring that there is sufficient oversight of the U.S. investment in Afghanistan.particularly vital given the uncertainties of the U.S.-Afghanistan Bilateral Security Agreement and post-2014 presence. While the circumstances, combat operations, and diplomatic efforts in Iraq differ from those in Afghanistan, potential lessons can be learned from the transition from a military to civilian-led presence in Iraq and applied to Afghanistan to avoid possible missteps and better utilize resources. In Iraq, State and DOD had to revise their plans for the U.S. presence from more than 16,000 personnel at 14 sites down to 11,500 personnel at 11 sites after the transition had begun—in part because the United States did not obtain the Government of Iraq’s commitment to the planned U.S. presence. Given these reductions, we found that State was projected to have an unobligated balance of between about $1.7 billion and about $2.3 billion in its Iraq operations budget at the end of fiscal year 2013, which we brought to the attention of Congressional appropriators. As a result, $1.1 billion was rescinded from State’s Diplomatic and Consular Programs account. According to DOD officials, U.S. Forces-Iraq planning assumed that a follow-on U.S. military force would be approved by both governments. The decision not to have a follow-on force led to a reassessment of State and DOD’s plans and presence. In April 2014, we reported that State planned for the U.S. footprint in Afghanistan to consist of the U.S. Embassy in Kabul, with additional representation at other locations as security and resources allow. In a review still under way, we are examining the status of U.S. civilian agencies’ plans for their presence in Afghanistan after the scheduled end of the U.S. combat mission on December 31, 2014, and how changes to the military presence will affect the post-2014 U.S. civilian presence. We have found that State plans to provide some critical support services to U.S. civilian personnel after the transition, but is planning to rely on DOD for certain other services. We plan to report in July 2014 on the anticipated size, locations, and cost of the post-2014 U.S. civilian presence, the planned division of critical support responsibilities between State and DOD, and how pending decisions regarding the post-2014 U.S. and coalition military presence will affect the U.S. civilian presence. In closing, the President announced in May 2014 that the United States intends to maintain a military presence in Afghanistan through the end of 2016, stationing about 10,000 military personnel in Afghanistan with two narrow missions: to continue supporting ANSF training efforts and to continue supporting counterterrorism operations against the remnants of al Qaeda. Simultaneously, the President announced that the embassy would be reduced to a “normal” presence. At the same time, the United States has made commitments to continue providing billions of dollars to Afghanistan over the next 2 years. These recently announced plans underscore the bottom line of my message today: continued oversight of U.S. agencies is required to ensure the challenges they face are properly mitigated in Afghanistan and that there is oversight and accountability of U.S. taxpayer funds. Chairman Ros-Lehtinen, Ranking Member Deutch, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. For further information on this statement, please contact me at (202) 512- 7331 or johnsoncm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Hynek Kalkus (Assistant Director), David Dayton, Anne DeCecco, Mark Dowling, Brandon Hunt, Christopher J. Mulkins, Kendal Robinson, and Amie Steele. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The U.S. government has engaged in multiple efforts in Afghanistan since declaring a global war on terrorism that targeted al Qaeda, its affiliates, and other violent extremists, including certain elements of the Taliban. These efforts have focused on a whole-of-government approach that calls for the use of all elements of U.S. national power to disrupt, dismantle, and defeat al Qaeda and its affiliates and prevent their return to Afghanistan. This approach, in addition to security assistance, provided billions toward governance and development, diplomatic operations, and humanitarian assistance. To assist Congress in its oversight, GAO has issued over 70 products since 2003 including key oversight issues related to U.S. efforts in Afghanistan. This testimony summarizes the key findings from those products and discusses: (1) the challenges associated with operating in Afghanistan, (2) key oversight and accountability issues regarding U.S. efforts in Afghanistan, and (3) the need for contingency planning as the U.S. transitions to a civilian-led presence in Afghanistan. Since 2003, GAO has identified numerous challenges related to U.S. efforts in Afghanistan. Among the various challenges that GAO and others have identified, are the following: the dangerous security environment, the prevalence of corruption, and the limited capacity of the Afghan government to deliver services and sustain donor-funded projects. As illustrated in the figure below, between fiscal years 2002 and 2013, U.S. agencies allocated nearly $100 billion toward U.S. efforts in Afghanistan. The United States, along with the international community, has focused its efforts in areas such as building the capacity of Afghan ministries to govern and deliver services, developing Afghanistan's infrastructure and economy, and developing and sustaining the Afghan National Security Forces. In multiple reviews of these efforts, GAO has identified numerous shortcomings and has made recommendations to the agencies to take corrective actions related to (1) mitigating the risk of providing direct assistance to the Afghan government, (2) oversight and accountability of U.S. development projects, and (3) estimating the future costs of sustaining Afghanistan's security forces which the United States and international community have pledged to support. In February 2013, GAO reported that while the circumstances, combat operations, and diplomatic efforts in Iraq differ from those in Afghanistan, potential lessons could be learned from the transition from a military- to a civilian-led presence to avoid possible missteps and better utilize resources. As GAO has reported, contingency planning is critical to a successful transition and to ensuring that there is sufficient oversight of the U.S. investment in Afghanistan. This is particularly vital given the uncertainties of the U.S.-Afghanistan Bilateral Security Agreement and the ultimate size of the post-2014 U.S. presence in Afghanistan. While GAO is not making new recommendations it has made numerous recommendations in prior reports aimed at improving U.S. agencies' oversight and accountability of U.S. funds in Afghanistan. U.S. agencies have generally concurred with these recommendations and have taken or plan to take steps to address them.