Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue
Published: 2011-03-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses our first annual report to Congress responding to a new statutory requirement that GAO identify federal programs, agencies, offices, and initiatives--either within departments or governmentwide--that have duplicative goals or activities. This work will inform government policymakers as they address the rapidly building fiscal pressures facing our national government. Our annual simulations of the federal government's fiscal outlook show continually increasing levels of debt that are unsustainable over time, absent changes in the federal government's current fiscal policies. Since the end of the recent recession, the gross domestic product has grown slowly and unemployment has remained at a high leveWhile the economy is still recovering and in need of careful attenwidespread agreement exists on the need to look not only at the near term but also at steps that begin to change the long-term fiscal path as soon as possible without slowing the recovery. With the passage of time, the window to address the fiscal challenge narrows and the magnitude of the required changes grows. This testimony is based on our March 1, 2011, report and addresses two key issues: (1) federal programs or functional areas where unnecessary duplication, overlap, or fragmentation exists, the actions needed to address such conditions, and the potential financial and other benefits of doing so; and (2) other opportunities for potential cost savings or enhanced revenues. The issues raised in the report were drawn from our prior and ongoing work.
section_title: What GAO Found
paragraphs: We identified 81 areas for consideration--34 areas of potential duplication, overlap, or fragmentation as well as 47 additional cost-saving and revenue-enhancing areas. The 81 areas span a range of federal government missions such as agriculture, defense, economic development, energy, general government, health, homeland security, international affairs, and social services. Within and across these missions, our report touches on hundreds of federal programs, affecting virtually all major federal departments and agencies. By reducing or eliminating unnecessary duplication, overlap, or fragmentation and by addressing the other cost-saving and revenue-enhancing opportunities contained in the report, the federal government could yield tens of billions of tax dollars annually and help agencies provide more efficient and effective services. However, these actions will require some difficult decisions, and sustained attention by the administration and the Congress. In some cases, there is sufficient information to estimate potential savings or other benefits if actions are taken to address individual issues. In other cases, estimates of cost savings or other benefits would depend upon what congressional and executive branch decisions were made, including how certain of our recommendations are implemented. Nevertheless, considering the amount of program dollars involved in the issues we have identified, even limited adjustments could result in significant savings. Additionally, information on program performance, the level of funding in agency budgets devoted to overlapping or fragmented programs, and the implementation costs that might be associated with program consolidations or terminations, are factors that could impact actions to be taken as well as potential savings. We identified 34 areas where agencies, offices, or initiatives may have similar or overlapping objectives or may provide similar services to the same populations; or where government missions are fragmented across multiple agencies or programs. Overlap and fragmentation among government programs or activities can be harbingers of unnecessary duplication. The areas identified below are not intended to represent the full universe of duplication, overlap, or fragmentation within the federal government. Our future work will examine other areas of government for potential duplication, overlap, and fragmentation. Given today's fiscal environment, our work summarizes 47 additional areas--beyond those directly related to duplication, overlap, or fragmentation--describing other opportunities for agencies or Congress to consider taking action that could either reduce the cost of government operations or enhance revenue collections for the Treasury. These cost-saving and revenue-enhancing opportunities also span a wide range of federal government agencies and mission areas.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our first annual report to  Congress responding to a new statutory requirement that GAO identify  federal programs, agencies, offices, and initiatives—either within  departments or governmentwide—that have duplicative goals or  activities. This work will inform government policymakers as they  address the rapidly building fiscal pressures facing our national  government. Our annual simulations of the federal government’s fiscal  outlook show continually increasing levels of debt that are unsustainable  over time, absent changes in the federal government’s current fiscal  policies. Since the end of the recent recession, the gross domestic  product has grown slowly and unemployment has remained at a high leve While the economy is still recovering and in need of careful attention,  widespread agreement exists on the need to look not only at the near term  but also at steps that begin to change the long-term fiscal path as soon as  possible without slowing the recovery. With the passage of time, the  window to address the fiscal challenge narrows and the magnitude of the  required changes grows. l.
My testimony today is based on our March 1, 2011, report and addresses  two key issues: (1) federal programs or functional areas where  unnecessary duplication, overlap, or fragmentation exists, the actions  needed to address such conditions, and the potential financial and other  benefits of doing so; and (2) other opportunities for potential cost savings  or enhanced revenues. The issues raised in the report were drawn from  our prior and ongoing work. We conducted our work from February 2010  through February 2011 in accordance with generally accepted government  auditing standards or with GAO’s quality assurance framework, as  appropriate. For issues being reported on for the first time, we sought  comments from the agencies involved and incorporated those comments  as appropriate.
We identified 81 areas for consideration—34 areas of potential  duplication, overlap, or fragmentation as well as 47 additional cost-saving  and revenue-enhancing areas. The 81 areas span a range of federal  government missions such as agriculture, defense, economic development,  energy, general government, health, homeland security, international  affairs, and social services. Within and across these missions, our report  touches on hundreds of federal programs, affecting virtually all major  federal departments and agencies. By reducing or eliminating unnecessary  duplication, overlap, or fragmentation and by addressing the other cost- saving and revenue-enhancing opportunities contained in the report, the  federal government could yield tens of billions of tax dollars annually and  help agencies provide more efficient and effective services. However,  these actions will require some difficult decisions, and sustained attention  by the administration and the Congress.
In some cases, there is sufficient information to estimate potential savings  or other benefits if actions are taken to address individual issues. In other  cases, estimates of cost savings or other benefits would depend upon what  congressional and executive branch decisions were made, including how  certain of our recommendations are implemented. Nevertheless,  considering the amount of program dollars involved in the issues we have  identified, even limited adjustments could result in significant savings.  Additionally, information on program performance, the level of funding in  agency budgets devoted to overlapping or fragmented programs, and the  implementation costs that might be associated with program  consolidations or terminations, are factors that could impact actions to be  taken as well as potential savings.
subsections: section_title: Overlap and Fragmentation Can Indicate Unnecessary Duplication
paragraphs: We identified 34 areas where agencies, offices, or initiatives may have  similar or overlapping objectives or may provide similar services to the  same populations; or where government missions are fragmented across  multiple agencies or programs (see table 1). Overlap and fragmentation  among government programs or activities can be harbingers of  unnecessary duplication. The areas identified below are not intended to  represent the full universe of duplication, overlap, or fragmentation within  the federal government. Our future work will examine other areas of  government for potential duplication, overlap, and fragmentation.
As table 1 shows, many of the issues we identified are focused on activities  that are contained within single departments or agencies. In those cases,  agency officials can generally achieve cost savings or other benefits by  implementing existing GAO recommendations or by undertaking new  actions suggested in our March 1 report. However, a number of issues we  have identified span multiple organizations and therefore may require  higher-level attention by the executive branch or enhanced congressional  oversight or legislative action. For example:    Teacher quality programs: In fiscal year 2009, the federal government  spent over $4 billion specifically to improve the quality of our nation’s 3  million teachers through numerous programs across the government. We  identified 82 distinct programs designed to help improve teacher quality,  either as a primary purpose or as an allowable activity, administered  across 10 federal agencies. The proliferation of programs has resulted in  fragmentation that can frustrate agency efforts to administer programs in a  comprehensive manner, limit the ability to determine which programs are  most cost effective, and ultimately increase program costs.
In 2009, we recommended that the Secretary of Education work with other  agencies as appropriate to develop a coordinated approach for routinely  and systematically sharing information that can assist federal programs,  states, and local providers in achieving efficient service delivery. The  Department of Education has established working groups to help develop  more effective collaboration across Education offices, and has reached  out to other agencies to develop a framework for sharing information on  some teacher quality activities, but it has noted that coordination efforts  do not always prove useful and cannot fully eliminate barriers to program  alignment, such as programs with differing definitions for similar  populations of grantees, which create an impediment to coordination.
Congress could help eliminate some barriers through legislation,  particularly through the pending reauthorization of the Elementary and  Secondary Education Act of 1965 and other key education bills.  Specifically, to minimize any wasteful fragmentation and overlap among  teacher quality programs, Congress may choose either to eliminate  programs that are too small to evaluate cost effectively or to combine  programs serving similar target groups into a larger program. Education  has already proposed combining 38 programs into 11 programs in its  reauthorization proposal, which could allow the agency to dedicate a  higher portion of its administrative resources to monitoring programs for  results and providing technical assistance.
Military health system: The responsibilities and authorities for the  Department of Defense’s (DOD) military health system are distributed  among several organizations within DOD with no central command  authority or single entity accountable for minimizing costs and achieving  efficiencies. Under the military health system’s current command structure,  the Office of the Assistant Secretary of Defense for Health Affairs, the Army,  the Navy, and the Air Force each has its own headquarters and associated  support functions. Annual military health system costs have more than  doubled from $19 billion in fiscal year 2001 to $49 billion in 2010 and are  expected to increase to over $62 billion by 2015.
DOD has made varying levels of progress in implementing limited actions  to consolidate certain common administrative, management, and clinical  functions. However, to reduce duplication in its command structure and  eliminate redundant processes that add to growing defense health care  costs, DOD could take action to further assess alternatives for  restructuring the governance structure of the military health system. A  May 2006 report by the Center for Naval Analyses showed that if DOD and  the services had chosen to implement one of the three larger-scale  alternative concepts studied by DOD, the department could have achieved  significant savings. Our adjustment of those projected savings into 2010  dollars indicates those savings could range from $281 million to $460  million annually depending on the alternative chosen and numbers of  military, civilian, and contractor positions eliminated. DOD officials said  that they generally agreed with the facts and findings in our analysis.
Federal data centers: According to the Office of Management and Budget  (OMB), the number of federal data centers grew from 432 in 1998 to more  than 2,000 in 2010. These data centers often house similar types of  equipment and provide similar processing and storage capabilities, raising  concerns about the provision of redundant capabilities, the  underutilization of resources, and the significant consumption of energy.  While the total annual federal spending associated with data centers has  not yet been determined, the Federal Chief Information Officer has found  that operating data centers is a significant cost to the federal government,  including hardware, software, real estate, and cooling costs. For example,  according to the Environmental Protection Agency, the electricity cost to  operate federal servers and data centers across the government is about  $450 million annually.
In February 2010, OMB launched the Federal Data Center Consolidation  Initiative to guide federal agencies in developing and implementing data  center consolidation plans. As part of this initiative, OMB directed federal  agencies to prepare an inventory of their data center assets and a plan for  consolidating these assets by August 30, 2010, and to begin implementing  them in fiscal year 2011. Moving forward, it will be important for  individual agencies to move quickly to correct any missing items in their  data center consolidation plans, establish sound baselines so that progress  and efficiencies can be measured, begin their consolidation efforts, track  their progress, and report to OMB on their progress over time. Sustained  monitoring by Congress could help ensure progress is realized.
DOD and VA electronic heath record systems: Although DOD and the  Department of Veterans Affairs (VA) have many common health care  business needs, the departments have separate efforts to modernize their  electronic health record systems. Specifically, DOD has obligated  approximately $2 billion over the 13-year life of its Armed Forces Health  Longitudinal Technology Application and requested $302 million in fiscal  2011 year funds for a new system. For its part, VA reported spending  almost $600 million from 2001 to 2007 on eight projects as part of its  Veterans Health Information Systems and Technology Architecture  modernization. In April 2008, VA estimated an $11 billion total cost to  complete the modernization by 2018.
Efforts by the departments to jointly identify and develop common  information technology solutions to address their mutual health care  needs could result in system development and operation cost savings  while supporting higher-quality health care for service members and  veterans. We identified several actions that DOD and VA could take to  overcome barriers they face in modernizing their electronic health record  systems, including revising the departments’ joint strategic plans and  defining and implementing a process for identifying and selecting joint  information technology investments. Officials from both DOD and VA  agreed with these recommendations.
Domestic ethanol production: Congress supported domestic ethanol  production through a $5.4 billion tax credit program in 2010 and through a  renewable fuel standard that applies to transportation fuels used in the  United States. The ethanol tax credit and the renewable fuel standard can  be duplicative in stimulating domestic production and use of ethanol, and  can result in substantial loss of revenue to the Treasury. The ethanol tax  credit was recently extended at 45 cents per gallon through December 31,  2011. The tax credit will cost $5.7 billion in forgone revenues in 2011.  Because the fuel standard allows increasing annual amounts of  conventional biofuels through 2015, which ensures a market for a  conventional corn starch ethanol industry that is already mature, Congress  may wish to consider whether revisions to the ethanol tax credit are  needed, such as reducing, modifying, or phasing out the tax credit.
Interagency and agencywide contracts: Agencies have created numerous  interagency and agencywide contracts using existing statutes, the Federal  Acquisition Regulation, and agency-specific policies. With the proliferation  of these contracts, however, there is a risk of unintended duplication and  inefficiency. Interagency and agencywide contracting was responsible for  at least $54 billion of the approximately $540 billion that was obligated  governmentwide for goods and services in fiscal year 2009. However, the  federal government does not have a clear, comprehensive view of whether  these contracts are being utilized in an efficient and effective manner. In  addition, agencies may be unaware of existing contract options that could  meet their needs and may be awarding new contracts when use of an  existing contract would suffice.
Government contracting officials and representatives of vendors have  expressed concerns about potential duplication among the interagency  and agencywide contracts across government. Some vendors stated they  offer similar products and services on multiple contracts and that the  effort required to be on multiple contracts results in extra costs to the  vendor, which they pass to the government through increased prices.  Some vendors stated that the additional cost of being on multiple  contracts ranged from $10,000 to $1,000,000 per contract due to increased  bid and proposal and administrative costs.
Requiring business case analyses for new multiagency and agencywide  contracts and ensuring agencies have access to up-to-date and accurate  data on the available contracts will promote the efficient use of  interagency and agencywide contracting and, by reducing the costs  associated with duplicate contracts, help the government better leverage  its purchasing power when buying commercial goods and services. OMB  reported in August 2010 that it planned to issue overarching guidance that  would address the need for agencies to prepare business cases describing  the need for a new multiagency or agencywide contract, the value added  by its creation, and the agency’s suitability to serve as an executive agent.  Additionally, improvements are still needed regarding the accuracy of the  federal contracts database in order to determine whether the contracts are  being used in an efficient and effective manner. Continued congressional  oversight of this issue is warranted.
Domestic food assistance: The federal government spent more than $62.5  billion on 18 domestic food and nutrition assistance programs in fiscal  year 2008. Programs’ spending ranged from $4 million for the smallest  program to more than $37 billion for the largest. The Department of  Agriculture’s (USDA) Food and Nutrition Service oversees most of these  programs—including the five largest. These programs help ensure that  millions of low-income individuals have consistent, dependable access to  enough food for an active, healthy life. However, we have found that some  of these programs provide comparable benefits to similar or overlapping  populations which can lead to inefficient use of federal funds, duplication  of effort, and confusion among those seeking services. For example,  individuals eligible for groceries through the Commodity Supplemental  Food Program are also generally eligible for groceries through the  Emergency Food Assistance Program and for targeted benefits that are  redeemed in authorized stores through the largest program, the  Supplemental Nutrition Assistance Program (formerly the Food Stamp  Program). In addition, most of the 18 programs have specific and often  complex legal requirements and administrative procedures that often  require applicants who seek assistance from multiple programs to submit  separate applications for each program and provide similar information  which can create unnecessary work for both providers and applicants and  may result in the use of more administrative resources than needed.  Additionally, little is known about the effectiveness of 11 of the 18  programs because they have not been well studied.
In April 2010, we recommended that USDA identify and develop methods  for addressing potential inefficiencies and reducing unnecessary overlap  among its smaller food assistance programs while ensuring that those who  are eligible receive the assistance they need. To date, USDA has not taken  action on this recommendation. One of the possible methods for reducing  program inefficiencies would entail USDA broadening its efforts to  simplify, streamline, or better align eligibility procedures and criteria  across programs to the extent that it is permitted by law. Such efforts  could result in sizable administrative cost savings since they are a large  part of program costs. In addition, options such as consolidating or  eliminating overlapping programs have the potential to reduce  administrative costs but may not reduce spending on benefits unless fewer  individuals are served as a result    Employment and training programs: In fiscal year 2009, 47 federal  employment and training programs spent about $18 billion to provide  services, such as job search and job counseling, to program participants.  Most of these programs are administered by the Departments of Labor,  Education, and Health and Human Services (HHS). We found that 44 of the  47 programs overlap with at least one other program in that they provide  at least one similar service to a similar population. Our review of three  programs among the largest—Temporary Assistance for Needy Families  (TANF), Employment Service, and Workforce Investment Act (WIA) Adult  programs—found that they provide some of the same services to the same  population through separate administrative structures. Although the  extent to which individuals receive the same services from these programs  is unknown due to limited data, these programs maintain parallel  administrative structures to provide some of the same services such as job  search assistance to low-income individuals.
At the state level, the TANF program (which also provides a wide range of  other services) is typically administered by the state human services or  welfare agency, while the Employment Service and WIA Adult programs  are typically administered by the state workforce agency and provided  through one-stop centers. Agency officials acknowledged that greater  efficiencies could be achieved in delivering services through these  programs but said factors such as the number of clients that any one-stop  center can serve and one-stop centers’ proximity to clients, particularly in  rural areas, could warrant having multiple entities provide the same  services. Colocating services and consolidating administrative structures  may increase efficiencies and reduce costs, but implementation can be  challenging.
Some states have colocated TANF employment and training services in  one-stop centers where Employment Service and WIA Adult services are  provided. Three states—Florida, Texas, and Utah—have gone a step  further by consolidating the agencies that administer these programs, and  state officials said this reduced costs and improved services, but they  could not provide a dollar figure for cost savings. States and localities may  face challenges to colocating services, such as limited office space. In  addition, consolidating administrative structures may be time consuming  and any cost savings may not be immediately realized.
To facilitate further progress by states and localities in increasing  administrative efficiencies in employment and training programs, we  recommended in 2011 that the Secretaries of Labor and HHS work  together to develop and disseminate information that could inform such  efforts. As part of this effort, Labor and HHS should examine the  incentives for states and localities to undertake such initiatives, and, as  warranted, identify options for increasing such incentives. Labor and HHS  agreed they should develop and disseminate this information. HHS noted  that it lacks legal authority to mandate increased TANF-WIA coordination  or create incentives for such efforts. Sustained oversight by Congress  could help ensure progress is realized.
section_title: Opportunities Exist for Other Cost Savings or Revenue Enhancements
paragraphs: Given today’s fiscal environment, our work summarizes 47 additional  areas—beyond those directly related to duplication, overlap, or  fragmentation—describing other opportunities for agencies or Congress to  consider taking action that could either reduce the cost of government  operations or enhance revenue collections for the Treasury. These cost- saving and revenue-enhancing opportunities also span a wide range of  federal government agencies and mission areas (see table 2).
Examples of opportunities for agencies or Congress to consider taking  action that could either reduce the cost of government operations or  enhance revenue collections include:    DOD spare parts: We have identified weaknesses in DOD’s inventory  management practices, including problems in accurately forecasting  demand for spare parts. Most recently, we reviewed the Defense Logistics  Agency inventory levels and reported in 2010 that the Agency, over a  period of 3 fiscal years, averaged $1 billion of inventory annually that has  been identified as excess. Since our work has consistently shown that the  greatest opportunities to minimize investment in unneeded inventory are  at the initial stages of the inventory management process when acquisition  decisions are being made, DOD could limit future costs by focusing its  efforts on better managing on-order inventory, with a view toward  reducing on-order inventory levels that are not needed for current needs  or projected demand.
Recently, Congress required DOD to submit a comprehensive plan for  improving the inventory management systems of the military departments  and the Defense Logistics Agency, with the objective of reducing the  acquisition and storage of inventory that is excess to requirements. In  November 2010, DOD submitted its plan to Congress and stated in its plan  that it has already reduced unneeded inventory and that further reductions  are possible. For example, DOD reported that $10.3 billion (11 percent) of  its secondary inventory has been designated as excess and categorized for  potential reuse or disposal. While DOD’s plan is an important step in  improving inventory management practices, successful implementation  will be challenging and will require sustained oversight by DOD as well as  collaboration among the services and the Defense Logistics Agency.  Continued congressional attention is warranted.
Corrosion: DOD estimates that corrosion costs the department over $23  billion each year. Corrosion—which can take such varied forms as rusting;  pitting; calcium or other mineral buildup; degradation from exposure to  ultraviolet light; and mold, mildew, and other organic decay—if left  unchecked, can degrade the readiness and safety of equipment and  facilities and can result in substantial, sometimes avoidable costs. The  Defense Science Board Task Force estimated in a 2004 report that 30  percent of corrosion costs could be avoided through proper investment in  prevention and mitigation of corrosion during design, manufacture, and  sustainment. According to DOD, increased corrosion prevention and  control efforts are needed to adequately address the wide-ranging and  expensive effects of corrosion on equipment and infrastructure. However,  DOD did not fund about one-third of acceptable corrosion projects for  fiscal years 2005 through 2010.
If the projects accepted by DOD’s Office of Corrosion Policy and Oversight  from fiscal years 2005 through 2010 had been fully funded, DOD  potentially could have avoided $3.6 billion in corrosion-related costs— assuming those projects achieved the same level of cost-effectiveness as  was estimated for all accepted projects in those years. If the Corrosion  Office wishes to convince DOD and congressional decision makers that  more fully funding its corrosion prevention programs could provide such a  significant return on investment, the Corrosion Office needs to complete  the validation of return on investment estimates in order to demonstrate  the costs and benefits of its corrosion prevention and control projects.
Noncompetitive contracts: Federal agencies generally are required to  award contracts competitively, but a substantial amount of federal money  is being obligated on noncompetitive contracts annually. Federal agencies  obligated approximately $170 billion on noncompetitive contracts in fiscal  year 2009 alone. While there has been some fluctuation over the years, the  percentage of obligations under noncompetitive contracts recently has  been in the range of 31 percent to over 35 percent. Although some agency  decisions to forego competition may be justified, we found that when  federal agencies decide to open their contracts to competition, they  frequently realize savings. For example, the Department of State (State)  awarded a noncompetitive contract for installation and maintenance of  technical security equipment at U.S. embassies in 2003. In response to our  recommendation, State subsequently competed this requirement, and in  2007 it awarded contracts to four small businesses for a total savings of  over $218 million. In another case, we found in 2006 that the Army had  awarded noncompetitive contracts for security guards, but later spent 25  percent less for the same services when the contracts were competed.
In July 2009, OMB called for agencies to reduce obligations under new  contract actions that are awarded using high-risk contracting authorities  by 10 percent in fiscal year 2010. These high-risk contracts include those  that are awarded noncompetitively and those that are structured as  competitive but for which only one offer is received. While sufficient data  are not yet available to determine whether OMB’s goal was met, we are  currently reviewing the agencies’ savings plans to identify steps taken  toward that goal, and will continue to monitor the progress agencies make  toward achieving this and any subsequent goals set by OMB.
Undisbursed grant balances: Past audits of federal agencies by GAO and  Inspectors General, as well as agencies’ annual performance reports, have  suggested grant management challenges, including failure to conduct grant  closeouts and undisbursed balances, are a long-standing problem. In  August 2008, we reported that during calendar year 2006, about $1 billion  in undisbursed funding remained in expired grant accounts in HHS’s  Payment Management System—the largest civilian grant payment system,  which multiple agencies use. In August 2008, we recommended that OMB  instruct all executive departments and independent agencies to track  undisbursed balances in expired grant accounts and report on the  resolution of this funding in their annual performance plan and  Performance and Accountability Reports. As of January 13, 2011, OMB had  not issued governmentwide guidance regarding undisbursed balances in  expired grant accounts.
Social Security offsets: Social Security covers about 96 percent of all U.S.  workers; the vast majority of the remaining 4 percent are public employees  who work for federal, state, and local government. Although these  workers do not pay Social Security taxes on their noncovered government  earnings, they may still be eligible for Social Security benefits through  their spouses’ or their own earnings from other jobs that Social Security  does cover. Two Social Security provisions—the Government Pension  Offset, which generally applies to spouse and survivor benefits, and the  Windfall Elimination Provision, which applies to retired worker benefits— attempt to take noncovered employment into account when calculating  the Social Security benefits. However, these provisions have been difficult  to administer because the Social Security Administration (SSA) does not  have the pension data it needs to perform these calculations accurately.
In April 1998, we recommended that SSA work with the Internal Revenue  Service (IRS) to revise the reporting of pension information on IRS Form  1099R, so that SSA would be able to identify people receiving a pension  from noncovered employment, especially in state and local governments.  However, IRS did not believe it could make the recommended change  without new legislative authority.
Extending mandatory Social Security coverage for all state and local  workers has been proposed among other options for addressing Social  Security’s long-term financial deficit. While this would eventually make the  Government Pension Offset and Windfall Elimination Provision offsets  obsolete, they would still be needed for many years to come for existing  employees and beneficiaries, and we continue to believe that it is  important to apply these laws consistently and equitably. Hence, we have  suggested that Congress consider giving IRS the authority to collect the  information that SSA needs on government pension income to administer  the Government Pension Offset and Windfall Elimination Provision  requirements accurately and fairly. The President’s 2011 budget proposal  contains a provision that would address the need for more complete and  accurate information on noncovered state and local pensions, and it  estimates savings of $2.9 billion over 10 years. The Congressional Budget  Office’s 2009 Budget Options, Volume 2, has a similar provision and  estimates savings of $2.4 billion over 10 years.
Customs fee collections: The U.S. Customs and Border Protection (CBP)  collects user fees to recover certain costs incurred for processing, among  other things, air and sea passengers, and various private and commercial  land, sea, air, and rail carriers and shipments. These fees are deposited  into the Customs User Fee Account. We discovered that CBP has a $639.4  million unobligated balance in its Customs User Fee Account as a result of  excess collections from a temporary fee increase and elimination of North  American Free Trade Agreement country exemptions from January 1,  1994, to September 30, 1997.
Clarifying the availability of unobligated balances in CBP’s Customs User  Fee Account could enable Congress to revise the agency’s future  appropriations, thereby producing a one-time savings of up to $640  million. We first identified these unobligated balances in 2008. CBP  officials stated at that time that although they formerly believed they  needed additional authorization to spend these balances, it later appeared  that the funds may be used as authorized by law. However, when we  discussed these unobligated balances again in 2009 and 2010, CBP officials  said they requested assistance from OMB to clarify the availability of these  funds but OMB has not responded to their request.
We believe this is an issue that Congress may wish to address since these  unobligated balances have remained in CBP’s Customs User Fee account  for more than 10 years. Congress could clarify the purposes for which the  $640 million in unobligated balances is available and take action as  appropriate.
Addressing the gap between taxes owed and paid: The net tax gap, which  is the difference between the amount of taxes owed and the amount paid  voluntarily and timely less late payments and IRS collection results, was  last estimated by IRS to be $290 billion for tax year 2001. Experts believe it  may be larger. Our work has identified a number of areas where IRS or  Congress could take action to better collect owed revenue, including:    Business nonfilers: Historically, the IRS has identified several million  businesses each year that may have failed to file tax returns—more  than it can thoroughly investigate. IRS has had difficulty determining if  these businesses are still active and thus required to file a tax return.  As a result, IRS has pursued many inactive businesses, which has not  been a productive use of its resources. Recently, IRS has begun to use  some third-party data such as information required about certain  payments as indicators of business activity.
However IRS has not used private sector data that it could obtain to  verify taxpayer statements about whether a business is active and a tax  return should have been filed. A number of private companies maintain  business activity data, such as data on a business’s gross sales and  number of employees. Our analysis of Dun and Bradstreet data showed  they could be used to identify business activity that IRS was not aware  of. For two states, we analyzed 2007 data on the businesses that IRS  initially identified as potential nonfilers but later determined were not  liable to file returns. Of these, we found 7,688 businesses where IRS  data indicated little or no business activity, but Dun and Bradstreet  data showed business activity as measured by sales totaling $4.1  billion. In addition to other improvements in its business nonfiler  program, we recommended that IRS study the feasibility and cost- effectiveness of using non-IRS, private data to verify taxpayer  statements. IRS agreed with the recommendation.
Electronic filing: The percentage of tax returns filed electronically has  increased from 52 percent in 2005 to 71 percent in 2010. However, in  2010, IRS still processed 40 million tax returns filed on paper.  Electronic filing benefits taxpayers by reducing processing errors and  expediting their refunds. Increasing electronic filing would also reduce  IRS’s return processing costs and increase revenue by facilitating  enforcement. As noted in a December 2010 GAO report, IRS estimated  savings of $3.10 per return for returns filed electronically versus paper  in fiscal year 2009.
Our prior work has shown that IRS has three opportunities to increase  electronic filing of individual income tax returns: (1) requiring tax  software identification numbers would help inform research into how  the pricing and attributes of different software products affect  taxpayers’ willingness to use software and file electronically, allowing  IRS to better promote electronic filing; (2) working with taxpayers and  their representatives to reduce the number of rejected electronic  returns could reduce the number of frustrated taxpayers who opt to  print and mail in their rejected electronic returns, leaving IRS to  identify and correct any errors and process the paper returns, thereby  losing the benefits of electronic filing; and (3) requiring software  vendors to encode relevant information in a bar code that would be  embedded on all paper returns printed from tax software and mailed  would enable IRS to obtain electronic information, such as a taxpayer’s  Social Security number and address, from the return. While not as  beneficial as electronic filing, bar coding would still provide  efficiencies over data transcription and enable more information to be  available electronically.
Having more or all tax return information available electronically could  help IRS target audits on noncompliant taxpayers, avoid burdening  compliant taxpayers with unnecessary audits, make more productive  use of IRS’s audit resources, and—according to IRS officials—increase  annual tax revenue by $175 million.
Adjusting civil tax penalties: The Internal Revenue Code has over 150  civil penalties that potentially deter taxpayer noncompliance. A  number of civil tax penalties have fixed dollar amounts—either a  specific dollar amount, or a minimum or maximum amount—that are  not indexed for inflation. Over time, the lack of indexing can decrease  the real value of IRS assessments and collections significantly. We  found in August 2007 that adjusting civil tax penalty fixed-dollar  amounts for inflation from 2000 to 2005 would have increased IRS  collections by an estimated $38 million to $61 million per year based on  a limited number of penalties we reviewed.
We reported that Congress may want to consider requiring IRS to  periodically adjust for inflation, and round appropriately, the fixed- dollar amounts of the civil penalties to account for the decrease in real  value over time and so that penalties for the same infraction are  consistent over time. Although Congress has increased the amount of  some fixed penalties since our report, only two penalties are to be  adjusted for inflation on a periodic basis. Consequently, we continue to  believe Congress should consider requiring IRS to periodically adjust  all fixed penalties for inflation.
Unneeded real property: Many federal agencies hold real property they do  not need, including property that is excess or underutilized. Excess and  underutilized properties present significant potential risks to federal  agencies because they are costly to maintain. For example, in fiscal year  2009, agencies reported underutilized buildings accounted for over $1.6  billion in annual operating costs. In a June 2010 Presidential Memorandum  to federal agencies, the administration established a new target of saving $3  billion through disposals and other methods by the end of fiscal year 2012;  the President reiterated this goal in his 2012 budget. However, federal  agencies continue to face obstacles to disposing of unneeded property, such  as requirements to offer the property to other federal agencies, then to state  and local governments and certain non profits at no cost. If these entities  cannot use the property, agencies may also need to comply with costly  historic preservation or environmental cleanup requirements before  disposing of the property. Finally, community stakeholders may oppose  agencies’ plans for property disposal. OMB could assist agencies in meeting  their property disposal target by implementing our April 2007  recommendation of developing an action plan to address key problems  associated with disposing of unneeded real property, including reducing the  effect of competing stakeholder interests on real property decisions.
In conclusion Mr. Chairman, Ranking Member Cummings, and Members of  the Committee, given the challenges noted above, careful, thoughtful  actions will be needed to address many of the issues discussed in our  March 1 report, particularly those involving potential duplication, overlap,  and fragmentation among federal programs and activities. These are  difficult issues to address because they may require agencies and Congress  to re-examine within and across various mission areas the fundamental  structure, operation, funding, and performance of a number of long- standing federal programs or activities with entrenched constituencies.  Some of these areas are also included in our 2011 High-Risk Series update  on which we testified before your committee in February 2011. Further, in  January 2011, the President signed the GPRA Modernization Act of 2010,  updating the almost two-decades-old Government Performance and  Results Act (GPRA). Implementing provisions of the new act—such as its  emphasis on establishing outcome-oriented goals covering a limited  number of crosscutting policy areas—could play an important role in  clarifying desired outcomes, addressing program performance spanning  multiple organizations, and facilitating future actions to reduce  unnecessary duplication, overlap, and fragmentation. Continued oversight  by OMB and Congress will be critical to ensuring that unnecessary  duplication, overlap, and fragmentation are addressed.
As the nation rises to meet the current fiscal challenges, GAO will  continue to assist Congress and federal agencies in identifying actions  needed to reduce duplication, overlap, and fragmentation; achieve cost  savings; and enhance revenues. In our future annual reports, we will look  at additional federal programs and activities to identify further instances  of duplication, overlap, and fragmentation as well as other opportunities  to reduce the cost of government operations and increase revenues to the  government. We plan to expand our work to more comprehensively  examine areas where a mix of federal approaches is used, such as tax  expenditures and direct spending. Likewise, we will continue to monitor  developments in the areas we have already identified. Issues of  duplication, overlap, and fragmentation will also be addressed in our  routine audit work during the year as appropriate and summarized in our  annual reports.
Thank you, Mr. Chairman, Ranking Member Cummings, and Members of  the Committee. This concludes my prepared statement. I would be pleased  to answer any questions you may have.
For further information on this testimony or our March 1 report, please  contact Patricia Dalton, Chief Operating Officer, who may be reached at  (202) 512-5600, or DaltonP@gao.gov; and Janet St. Laurent, Managing  Director, Defense Capabilities and Management, who may be reached at  (202) 512-4300, or StLaurentJ@gao.gov. Specific questions about individual  issues may be directed to the area contact listed at the end of each area  summary in the report. Contact points for our Congressional Relations and  Public Affairs offices may be found on the last page of this statement.
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