GAO's 2005 High-Risk Update
Published: 2005-02-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO's audits and evaluations identify federal programs and operations that, in some cases, are high risk due to their greater vulnerabilities to fraud, waste, abuse, and mismanagement. Increasingly, GAO also is identifying high-risk areas to focus on the need for broad-based transformations to address major economy, efficiency, or effectiveness challenges. Since 1990, GAO has periodically reported on government operations that it has designated as high risk. In this 2005 update for the 109th Congress, GAO presents the status of high-risk areas identified in 2003 and new high-risk areas warranting attention by the Congress and the administration. Lasting solutions to high-risk problems offer the potential to save billions of dollars, dramatically improve service to the American public, strengthen public confidence and trust in the performance and accountability of the federal government, and ensure the ability of government to deliver on its promises.
section_title: What GAO Found
paragraphs: In January 2003, GAO identified 25 high-risk areas; in July 2003, a 26th highrisk area was added to the list. Since then, progress has been made in all areas, although the nature and significance of progress varies by area. Federal departments and agencies, as well as the Congress, have shown a continuing commitment to addressing high-risk challenges and have taken various steps to help correct several of the problems' root causes. GAO has determined that sufficient progress has been made to remove the high-risk designation from three areas: student financial aid programs, FAA financial management, and Forest Service financial management. Also, four areas related to IRS have been consolidated into two areas. This year, GAO is designating four new high-risk areas. The first new area is establishing appropriate and effective information-sharing mechanisms to improve homeland security. Federal policy creates specific requirements for information-sharing efforts, including the development of processes and procedures for collaboration between federal, state, and local governments and the private sector. This area has received increased attention but the federal government still faces formidable challenges sharing information among stakeholders in an appropriate and timely manner to reduce risk. The second and third new areas are, respectively, DOD's approach to business transformation and its personnel security clearance program. GAO has reported on inefficiencies and inadequate transparency and accountability across DOD's major business areas, resulting in billions of dollars of wasted resources. Senior leaders have shown commitment to business transformation through individual initiatives in acquisition reform, business modernization, and financial management, among others, but little tangible evidence of actual improvement has been seen in DOD's business operations to date. DOD needs to take stronger steps to achieve and sustain business reform on a departmentwide basis. Further, delays by DOD in completing background investigations and adjudications can affect the entire government because DOD performs this function for hundreds of thousands of industry personnel from 22 federal agencies, as well as its own service members, federal civilian employees, and industry personnel. OPM is to assume DOD's personnel security investigative function, but this change alone will not reduce the shortages of investigative personnel. The fourth area is management of interagency contracting. Interagency contracts can leverage the government's buying power and provide a simplified and expedited method of procurement. But several factors can pose risks, including the rapid growth of dollars involved combined with the limited expertise of some of agencies in using these contracts and recent problems related to their management. Various improvement efforts have been initiated to address this area, but improved policies and processes, and their effective implementation, are needed to ensure that interagency contracting achieves its full potential in the most effective and efficient manner.

section_title: Letter
paragraphs: DOD Supply Chain Management (formerly Inventory Management)
Managing Federal Contracting More Effectively  Assessing the Efficiency and Effectiveness of Tax Law Administration  Enforcement of Tax Lawsa, b Modernizing and Safeguarding Insurance and Benefit Programs  Pension Benefit Guaranty Corporation Single-Employer Insurance Program HUD Single-Family Mortgage Insurance and Rental Housing Assistance Programs  FAA Air Traffic Control Modernization Two high-risk areas—Collection of Unpaid Taxes and Earned Income Credit Noncompliance—have  been consolidated to make this area.
Mr. Chairman, Senator Akaka, Members of the Subcommittee: Thank you for the opportunity to discuss GAO’s 2005 high-risk update  report.  As you know, we periodically assemble our work for the Congress  in ways we hope will help in its budget and programmatic deliberations, as  well as oversight and legislative activities.  The “high-risk” program was  begun in 1990 under the direction of my immediate predecessor, the  Honorable Charles A. Bowsher.  Beginning in 1993, we have been updating  this report at the onset of each new Congress.  This effort, which is actively  supported by your Subcommittee, as well as the full Senate Committee on  Homeland Security and Governmental Affairs and the House Committee on  Government Reform, has brought a much needed focus to problems that  are impeding effective government and costing the government billions of  dollars each year.   In fact, Chairman Voinovich and Senator Akaka, our  2005 high-risk update was issued on January 25, 2005, at a press briefing  that the chairs and ranking members of our Senate and House oversight  committees, as well as both of you, attended.
As this Subcommittee knows, we have made hundreds of  recommendations to improve these high-risk operations. Moreover, our  focus on high-risk problems contributed to the Congress’s enacting a series  of governmentwide reforms to address critical human capital challenges,  strengthen financial management, improve information technology  practices, and instill a more results-oriented government. Our high-risk  status reports are provided at the start of each new Congress. This update  should help you and other Members of Congress carry out your  responsibilities while improving the federal  government’s performance  and enhancing its accountability for the benefit of the American people.
During my tenure as Comptroller General, our high-risk program has  increasingly focused on those major programs and operations that need  urgent attention and transformation in order to ensure that our national  government functions in the most economical, efficient, and effective  manner possible. As in prior updates, federal programs and operations are  also emphasized when they are at high risk because of their greater  vulnerabilities to fraud, waste, abuse, and mismanagement.
Our report summarizes (1) progress made in correcting high-risk problems,  (2) actions under way, and (3) further actions that we believe are needed.  In this update, we determined that sufficient progress had been made to  remove the high-risk designation from three areas, and we designated four  new areas as high risk. In addition, several prior high-risk areas have been  consolidated or modified.
Our objective for the high-risk list is to bring “light” to these areas as well as  “heat” to prompt needed “actions.”  The Bush Administration has looked to  our high-risk program to help shape various governmentwide initiatives  such as the President’s Management Agenda, which has at its base many of  the areas we had previously designated as high risk. To its credit, the Office  of Management and Budget (OMB) has worked closely with a number of  agencies that have high-risk issues, in many cases establishing action plans  and milestones for agencies to complete needed actions to address areas  that we have designated as high risk.  In this regard, Clay Johnson, OMB’s  Deputy Director for Management, recently reaffirmed the Bush  Administration’s desire to refocus on GAO’s high-risk list in order to make  as much progress as possible in the President’s second term.   This is very  encouraging.  However, continued oversight by the Congress will also be  key, and in the case of some areas, legislative actions will be needed.
Just yesterday, we issued another report entitled 21st Century Challenges:   Reexamining the Base of the Federal Government (GAO-05-325SP), which  presented a number of illustrative questions for the Congress and other  policy makers to consider as they carry out their various constitutional  responsibilities.  These questions span a broad range of budget categories  and federal operations, including discretionary and mandatory spending,  and tax policies and programs.  We hope that this new report, along with  the high-risk report, will be used by various congressional committees as  they consider which areas of government need particular attention and  reconsideration.  In the final analysis, only elected officials can decide  whether, when, and how best to proceed to address these important issues.
subsections: section_title: High-Risk Designations Removed
paragraphs: For this 2005 high-risk update, we determined that three high-risk areas  warranted removal from the list because of progress made. They are the  Department of Education’s (Education) Student Financial Aid Programs,  Federal Aviation Administration (FAA) Financial Management, and the  Department of Agriculture’s (USDA) Forest Service Financial Management.  We will, however, continue to monitor these programs, as appropriate, to  ensure that the improvements we have noted are sustained.
subsections: section_title: Student Financial Aid Programs
paragraphs: In 1990, we designated student financial aid programs as high risk. Since  then, in intervening high-risk updates, we reported various problems,  including poor financial management and weak internal controls,  fragmented and inefficient information systems, and inadequate attention  to program integrity as evidenced by high default rates and the numbers of  ineligible students participating in the programs. In 1998, the Congress  established Education’s Office of Federal Student Aid (FSA) as the  government’s first performance-based organization, thus giving it greater  flexibility to better address long-standing management weaknesses within  student aid programs. In 2001, Education created a team of senior  managers dedicated to addressing key financial and management problems  throughout the agency, and in 2002, the Secretary of Education made  removal from GAO’s high-risk list a specific goal and listed it as a  performance measure in Education’s strategic plan. We reported in 2003  that Education had made important progress, but that it was too early to  determine whether improvements would be sustained and that additional  steps needed to be taken in several areas.
Since 2003, Education has sustained improvements in the financial  management of student financial aid programs and taken additional steps  to address our concerns about systems integration, reporting on defaulted  loans, and human capital management. Furthermore, the agency has met  many of our criteria for removing the high-risk designation. Education has  demonstrated a strong commitment to addressing risks; developed and  implemented corrective action plans; and, through its annual planning and  reporting processes, monitored the effectiveness and sustainability of its  corrective measures. Thus, while FSA needs to continue its progress and  take additional steps to fully address some of our recommendations, we  are removing the high-risk designation from student financial aid programs.
FSA has sustained improvements to address its financial management and  internal control weaknesses. FSA received an unqualified, or “clean,”  opinion on its financial statements for fiscal years 2002, 2003, and 2004. In  addition, the auditors indicated progress in addressing previously  identified internal control weaknesses, with no material weaknesses  reported in FSA’s fiscal year 2003 and 2004 audits. However, the auditors  reported that FSA should continue to further strengthen these internal  controls, which are related to the calculation and reporting of the loan  liability activity and subsidy estimates, as well as its information systems  controls. FSA has also established processes to address several previously  reported internal control weaknesses that made FSA vulnerable to  improper payments in its grant and loan programs. For example, FSA has  taken steps to better ensure that grants are not awarded to ineligible  students and has implemented a process to identify and investigate schools  for possible fraudulent activities or eligibility-related violations. Further,  FSA addressed concerns we raised about students who were  underreporting family income, by working with OMB and the Department  of the Treasury to draft legislation that would permit use of tax information  to verify income reported on student aid applications.
FSA has taken further actions toward integrating its many disparate  information systems. FSA has developed an integration strategy that  focuses on achieving a seamless information exchange environment  whereby users—students, educational institutions, and lenders—would  benefit from simplified access to the agency’s financial aid processes and  more consistent and accurate data across its programs. FSA also has made  progress toward establishing an enterprise architecture for guiding its  systems integration efforts and has begun three efforts for reengineering its  information-processing environment, which would consolidate and  integrate most of its systems and move it closer to a seamless information  exchange environment.
FSA also included action steps for achieving student loan default  management goals in its annual plan and has taken steps to help reduce the  default rate. In 2003, FSA created a work group that identified over 60  default prevention and management initiatives and established a new  organizational unit to focus on mitigating and reducing the risk of loss to  the taxpayer from student obligations. FSA added information to its exit  counseling guide to help increase borrowers’ awareness of the benefits of  repaying their loans through electronic debiting accounts and prepayment  options. In 2003, FSA reported a cohort default rate of 5.4 percent for 2001,  and defaulted loans as a percentage of total outstanding loans declined  from 9.4 percent in 2001 to 7.6 percent in 2003.
FSA is taking steps to address its human capital challenges. It developed a  comprehensive human capital strategy that includes many of the practices  of leading organizations and has addressed many of the issues we  previously raised. For example, FSA identified challenges that it will likely  face in coming years, such as likely retirements, and discussed recognized  weaknesses, such as the need to develop the skills of staff and maintain the  focus of the agency’s leadership on human capital issues. FSA has also  prepared a succession plan that addresses some of our concerns about the  pending retirement of senior employees in key positions across the agency.  Additionally, FSA has established several approaches to support staff  development by revising its Skills Catalog, which should enable staff to  independently plan their professional development; introducing online  learning tools; offering a wide variety of internal courses; and providing  funds for external courses.
FAA Financial Management  We first designated FAA financial management as high risk in 1999 because  the agency lacked accountability for billions of dollars in assets and  expenditures due to serious weaknesses in its financial reporting, property,  and cost accounting systems. These problems continued through fiscal  year 2001, when FAA’s financial management system required 850  adjustments totaling $41 billion in order to prepare FAA’s annual financial  statements. In addition, at that time, FAA could not accurately and  routinely account for property totaling a reported $11.7 billion, and lacked  the cost information necessary for decision making as well as to adequately  account for its activities and major projects, such as the air traffic control  modernization program. Also, while FAA received an unqualified audit  opinion on its fiscal year 2001 financial statements, the auditor’s report  cited a material internal control weakness related to FAA’s lack of  accountability for its property and several other internal control  weaknesses related to financial management issues.
At the time of our January 2003 high-risk report, FAA had made significant  progress in addressing its financial management weaknesses, most  importantly through ongoing efforts to develop a new financial  management system called Delphi, including an integrated property  accounting system, as well as initiatives to develop a new cost accounting  system. However, these new systems were still under development and not  yet operational. Therefore, it had yet to be seen whether the new systems  would resolve the long-standing financial management issues that had  resulted in our designation of FAA financial management as high risk. As a  result, we retained FAA financial management as a high-risk area, while  noting that significant progress was being made.
FAA management has continued to make progress since our January 2003  high-risk report. Subsequent auditors’ reports on FAA’s financial statements  for fiscal years 2002 and 2003 were unqualified, but continued to cite  internal control weaknesses, although less severe than in prior years,  related to FAA’s then existing financial management systems. In fiscal year  2004, FAA implemented its new Delphi general ledger system, including an  integrated property accounting system. FAA management was able to  prepare financial statements for the fiscal year ended September 30, 2004,  using these new systems, and FAA’s auditors gave FAA an unqualified  opinion on these financial statements. While the auditors reported several  internal control weaknesses related to the implementation of the new  financial management systems, none of these were considered to be  material weaknesses, and FAA management, in responding to the auditor’s  report, indicated their full commitment to addressing these issues.
While the cost accounting system is still under development, progress has  been made. The cost accounting interface with Delphi was completed in  fiscal year 2004, and the labor distribution interface is expected to be  completed in fiscal year 2005. For the first time, some cost accounting data,  while not available on a monthly basis, were available shortly after fiscal- year end for the 12 months ended September 30, 2004. FAA management  has demonstrated its commitment to the full implementation of this  system, devoting significant planning and resources to its completion and  the monitoring of its implementation progress.
While it is important that FAA management continue to place a high  priority on the cost system and, more importantly, ultimately use cost  information routinely in FAA decision making, FAA’s progress in improving  financial management overall since our January 2003 high-risk update has  been sufficient for us to remove the high-risk designation for FAA financial  management.
section_title: Forest Service Financial Management
paragraphs: We first designated USDA’s Forest Service financial management as high  risk in 1999 because the agency lacked accountability over billions of  dollars in its two major assets—fund balance with the Department of the  Treasury (Treasury) and property, plant, and equipment. Since the Forest  Service is a major component of USDA, the lack of accountability over  these two major assets contributed to disclaimers of opinions on USDA’s  consolidated financial statements. In addition, the Forest Service  continued to have material weaknesses in its accounting and reporting of  accounts receivable and accounts payable. This precluded the agency from  knowing costs it had incurred and amounts owed to others throughout the  year. These problems were further exacerbated by problems with the  Forest Service’s partial implementation of its new financial accounting  system. This system was unable to produce certain critical budgetary and  accounting reports that track obligations, assets, liabilities, revenues, and  costs. Thus, these financial reporting weaknesses hampered management’s  ability to effectively manage operations, monitor revenue and spending  levels, and make informed decisions about future funding needs.
The Forest Service’s long-standing financial management deficiencies were  also evident in the repeated negative opinions on its financial statements,  including adverse opinions in fiscal years 1991, 1992, and 1995. Due to the  severity of its accounting and reporting deficiencies, the Forest Service did  not prepare financial statements for fiscal year 1996, but chose instead to  focus on trying to resolve these problems. However, the Forest Service’s  pervasive material internal control weaknesses continued to plague the  agency. In our 2001 high-risk update, we reported that the USDA Office of  Inspector General was unable to determine the accuracy of the Forest  Service’s reported $3.1 billion in net property, plant, and equipment, which  represented 51 percent of the agency’s assets. We also reported that the  inspector general was unable to verify fund balances with Treasury totaling  $2.6 billion because the reconciliation of agency records with Treasury  records had not been completed. Because of the severity of these and other  deficiencies, the inspector general disclaimed from issuing opinions on the  Forest Service’s financial statements for fiscal years 1997 through 2001. In  addition, we noted that the Forest Service’s autonomous field structure  hampered efforts to correct these accounting and financial reporting  deficiencies. We also reported that the Forest Service had implemented its  new accounting system agencywide. However, the system depended on and  received data from feeder systems that were poorly documented,  operationally complex, deficient in appropriate control processes, and  costly to maintain.
In our 2003 high-risk report, while we highlighted that the Forest Service  continued to have long-standing material control weaknesses, including  weaknesses in its fund balance with Treasury and in property, plant, and  equipment, we reported that the Forest Service had made progress toward  achieving accountability by receiving its first unqualified opinion on its  fiscal year 2002 financial statements. Although the Forest Service had  reached an important milestone, it had not yet proved it could sustain this  outcome, and had not reached the end goal of routinely producing timely,  accurate, and useful financial information. As a result, we retained Forest  Service financial management as a high-risk area.
In the past 2 years, the Forest Service has made additional progress,  especially with respect to addressing several long-standing material  internal control deficiencies. Based on our criteria for removing a high-risk  designation, which includes a demonstrated strong commitment,  corrective action plan, and progress in addressing deficiencies, we believe  the Forest Service’s overall improvement in financial management since  our January 2003 high-risk update has been sufficient for us to remove  Forest Service financial management from the high-risk list at this time.  The Forest Service has resolved material deficiencies related to its fund  balance with Treasury and in property, plant, and equipment, thus  increasing accountability over its billions of dollars in assets, and USDA  and the Forest Service received unqualified opinions on their fiscal year  2004 financial statements.
This does not mean that the Forest Service has no remaining challenges.  For example, while we recognized its clean opinion for fiscal year 2002 in  our last update, subsequently, in fiscal year 2003, these financial statements  had to be restated to correct material errors. The Forest Service also  received a clean opinion for fiscal year 2003, but these financial statements  had to be restated in fiscal year 2004 to again correct material  misstatements. Frequent restatements to correct errors can undermine  public trust and confidence in both the entity and all responsible parties.  Further, the Forest Service continues to have material internal control  weaknesses related to financial reporting and information technology  security, and its financial management systems do not yet substantially  comply with the Federal Financial Management Improvement Act of 1996.
However, the Forest Service has demonstrated a strong commitment to  efforts under way or planned, that, if effectively implemented, should help  to resolve many of its remaining financial management problems and move  it toward sustainable financial management business processes. These  efforts are designed to address internal control and noncompliance issues  identified in audit reports, as well as organizational issues. For example,  during fiscal year 2004, the Forest Service began reengineering and  consolidating its finance, accounting, and budget processes. We believe  these efforts, if implemented effectively, will provide stronger financial  management, sustain positive audit results, and ensure compliance with  federal financial reporting standards. Yet, it is important that USDA and  Forest Service officials continue to place a high priority on addressing the  Forest Service’s remaining financial management problems, and we will  continue to monitor its progress.
section_title: New High-Risk Areas
paragraphs: Our use of the high-risk designation to draw attention to the challenges  associated with the economy, efficiency, and effectiveness of government  programs and operations in need of broad-based transformation has led to  important progress. We will also continue to identify high-risk areas based  on the more traditional focus on fraud, waste, abuse, and mismanagement.  Overall, our focus will continue to be on identifying the root causes behind  vulnerabilities, as well as actions needed on the part of the agencies  involved and, if appropriate, the Congress. For 2005, we have designated  the following four new areas as high risk: Establishing Appropriate and  Effective Information-Sharing Mechanisms to Improve Homeland Security,  Department of Defense (DOD) Approach to Business Transformation, DOD  Personnel Security Clearance Program, and Management of Interagency  Contracting.
subsections: section_title: Establishing Appropriate and Effective Information- Sharing Mechanisms to Improve Homeland Security
paragraphs: Information is a crucial tool in fighting terrorism, and the timely  dissemination of that information to the appropriate government agency is  absolutely critical to maintaining the security of our nation. The ability to  share security-related information can unify the efforts of federal, state,  and local government agencies, as well as the private sector as appropriate,  in preventing or minimizing terrorist attacks.
The 9/11 terrorist attacks heightened the need for comprehensive  information sharing. Prior to that time, the overall management of  information-sharing activities among government agencies and between  the public and private sectors lacked priority, proper organization,  coordination, and facilitation. As a result, the existing national mechanisms  for collecting threat information, conducting risk analyses, and  disseminating warnings were at an inadequate state of development for  protecting the United States from coordinated terrorist attacks.
Information sharing for securing the homeland is a governmentwide effort  involving multiple federal agencies, including but not limited to the Office  of Management and Budget (OMB); the Departments of Homeland Security  (DHS), Justice, State, and Defense; and the Central Intelligence Agency.  Over the past several years, GAO has identified potential information- sharing barriers, critical success factors, and other key management issues  that should be considered, including the processes, procedures, and  systems to facilitate information sharing among and between government  entities and the private sector.
Establishing an effective two-way exchange of information to detect,  prevent, and mitigate potential terrorist attacks requires an extraordinary  level of cooperation and perseverance among federal, state, and local  governments and the private sector to establish timely, effective, and useful  communications. Since 1998, GAO has recommended the development of a  comprehensive plan for information sharing to support critical  infrastructure protection efforts. The key components of this  recommendation can be applied to broader homeland security and  intelligence-sharing efforts, including clearly delineating the roles and  responsibilities of federal and nonfederal entities, defining interim  objectives and milestones, setting time frames for achieving objectives, and  establishing performance measures.
We have made numerous recommendations related to information sharing,  particularly as they relate to fulfilling federal critical infrastructure  protection responsibilities.  For example, we have reported on the  practices of organizations that successfully share sensitive or time-critical  information, including establishing trust relationships, developing  information-sharing standards and protocols, establishing secure  communications mechanisms, and disseminating sensitive information  appropriately. Federal agencies have concurred with our recommendations  that they develop appropriate strategies to address the many potential  barriers to information sharing. However, many federal efforts remain in  the planning or early implementation stages.
In the absence of comprehensive information-sharing plans, many aspects  of homeland security information sharing remain ineffective and  fragmented. Accordingly, we are designating information sharing for  homeland security as a governmentwide high-risk area because this area,  while receiving increased attention, still faces significant challenges. Since 2002, legislation, various national strategies, and executive orders have  specified actions to improve information sharing for homeland security.
Earlier this month, DHS released an Interim National Infrastructure  Protection Plan (NIPP), which addresses some of the key issues that GAO  has previously identified. The DHS plan is intended to provide a consistent,  unifying structure for integrating critical infrastructure protection (CIP)  efforts into a national program.  The interim NIPP identifies key  stakeholders and participants in information sharing efforts related to  public-private efforts to protect critical infrastructure. In addition, the plan  recognizes that information sharing systems can be broadly defined as  interactions of people, physical structures, information, and technologies  that are designed to ensure that critical, high-quality, and productive  knowledge is available to decision makers whenever and wherever it is  needed.  Further, the plan identifies key responsibilities for DHS, including  the development, implementation, and expansion of information-sharing  strategies to support infrastructure protection efforts.
The interim plan released by DHS is an important step toward improving  information sharing for infrastructure protection efforts; however,  extraordinary challenges remain. As the 9/11 Commission recognized,  information sharing must be “guided by a set of practical policy guidelines  that simultaneously empower and constrain officials, telling them clearly  what is and is not permitted.”  While the wide range of executive and  legislative branch actions is encouraging, significant challenges remain in  developing the required detailed policies, procedures, and plans for sharing  homeland security-related information. For example, the Homeland  Security Information Sharing Act required procedures for facilitating  homeland security information sharing and established authorities to share  different types of information, such as grand jury information; electronic,  wire, and oral interception information; and foreign intelligence  information. In July 2003, the President assigned these functions to the Secretary of Homeland Security, but no deadline was established for  developing information-sharing procedures. Without clear processes and  procedures for rapidly sharing appropriate information, the ability of  private sector entities to effectively design facility security systems and  protocols can be impeded. In addition, the lack of sharing procedures can  also limit the federal government’s accurate assessment of nonfederal  facilities’ vulnerability to terrorist attacks.
In December 2004, the Intelligence Reform and Terrorism Prevention Act of  2004 (P.L. 108-458) required the establishment of (1) an information-sharing  environment (ISE) as a means of facilitating the exchange of terrorism  information among appropriate federal, state, local, and tribal entities, and  the private sector; and (2) an information-sharing council to support the  President and the ISE program manager with advice on developing  policies, procedures, guidelines, roles, and standards necessary to  implement and maintain the ISE. It will be important to ensure that the  DHS information-sharing systems are coordinated with those required  under the intelligence reform legislation.
Improving the standardization and consolidation of data can also promote  better sharing. For example, in 2003 we found that goals, objectives, roles,  responsibilities, and mechanisms for information sharing had not been  consistently defined by the 9 federal agencies that maintain 12 key terrorist  and criminal watch list systems. As a result, efforts to standardize and  consolidate appropriate watch list data would be impeded by the existence  of overlapping sets of data, inconsistent agency policies and procedures for  the sharing of those data, and technical incompatibilities among the  various watch list information systems. In addition, 2004 reports from the  inspectors general at DHS and the Department of Justice highlight the  challenges and slow pace of integrating and sharing information between  fingerprint databases.
A great deal of work remains to effectively implement the many actions  called for to improve homeland security information sharing, including  establishing clear goals, objectives, and expectations for the many  participants in information-sharing efforts; and consolidating,  standardizing, and enhancing federal structures, policies, and capabilities  for the analysis and dissemination of information.
section_title: DOD Approach to Business Transformation
paragraphs: DOD spends billions of dollars each year to sustain key business operations  that support our forces, including, for example, systems and processes  related to human capital policies and practices, acquisition and contract  management, financial management, supply chain management, business  systems modernization, and support infrastructure management—all of  which appear on GAO’s high-risk list. Recent and ongoing military  operations in Afghanistan and Iraq and new homeland defense missions  have led to newer and higher demands on our forces in a time of growing  fiscal challenges for our nation. In an effort to better manage DOD’s  resources, the Secretary of Defense has appropriately placed a high priority  on transforming force capabilities and key business processes.
For years, we have reported on inefficiencies and the lack of adequate  transparency and appropriate accountability across DOD’s major business  areas, resulting in billions of dollars of wasted resources annually.  Although the Secretary of Defense and senior leaders have shown  commitment to business transformation, as evidenced by individual key  initiatives related to acquisition reform, business modernization, and  financial management, among others, little tangible evidence of actual  improvement has been seen in DOD’s business operations to date.  Improvements have generally been limited to specific business process  areas, such as DOD’s purchase card program, and have resulted in the  incorporation of many key elements of reform, such as increased  management oversight and monitoring and results-oriented performance  measures. However, DOD has not taken the steps it needs to take to  achieve and sustain business reform on a broad, strategic, departmentwide,  and integrated basis. Among other things, it has not established clear and  specific management responsibility, accountability, and control over  overall business transformation-related activities and applicable resources.  In addition, DOD has not developed a clear strategic and integrated plan for  business transformation with specific goals, measures, and accountability  mechanisms to monitor progress, or a well-defined blueprint, commonly  called an enterprise architecture, to guide and constrain implementation of  such a plan. For these reasons, we, for the first time, are designating DOD’s  lack of an integrated strategic planning approach to business  transformation as high risk.
DOD’s current and historical approach to business transformation has not  proven effective in achieving meaningful and sustainable progress in a  timely manner. As a result, change is necessary in order to expedite the  effort and increase the likelihood of success. For DOD to successfully  transform its business operations, it will need a comprehensive and  integrated business transformation plan; people with needed skills,  knowledge, experience, responsibility, and authority to implement the plan;  an effective process and related tools; and results-oriented performance  measures that link institutional, unit, and individual performance goals and  expectations to promote accountability for results. Over the last 3 years,  we have made several recommendations that, if implemented effectively,  could help DOD move forward in establishing the means to successfully  address the challenges it faces in transforming its business operations. For  example, we believe that DOD needs a full-time chief management officer  (CMO) position, created through legislation, with responsibility, authority,  and accountability for DOD’s overall business transformation efforts. This  is a “good government” matter that should be addressed in a professional  and nonpartisan manner. The CMO must be a person with significant  authority and experience who would report directly to the Secretary of  Defense. Given the nature and complexity of the overall business  transformation effort, and the need for sustained attention over a  significant period of time, this position should be a term appointment (e.g.,  7 years), and the incumbent should be subject to a performance contract.  DOD has agreed with many of our recommendations and launched efforts  intended to implement many of them, but progress to date has been slow.  In my view, it will take the sustained efforts of a CMO, as we have  proposed, to make the needed progress in transforming DOD’s business  operations.
section_title: DOD Personnel Security Clearance Program
paragraphs: Delays in completing hundreds of thousands of background investigations  and adjudications (a review of investigative information to determine  eligibility for a security clearance) have led us to add the DOD personnel  security clearance program to our 2005 high-risk list. Personnel security  clearances allow individuals to gain access to classified information that, in  some cases, could reasonably be expected to cause exceptionally grave  damage to national defense or foreign relations through unauthorized  disclosure. Worldwide deployments, contact with sensitive equipment, and  other security requirements have resulted in DOD’s having approximately 2  million active clearances. Problems with DOD’s personnel security  clearance process can have repercussions throughout the government  because DOD conducts personnel security investigations and adjudications  for industry personnel from 22 other federal agencies, in addition to  performing such functions for its own service members, federal civilian  employees, and industry personnel. While our work on the clearance  process has focused on DOD, clearance delays in other federal agencies  suggest that similar impediments and their effects may extend beyond  DOD.
Since at least the 1990s, we have documented problems with DOD’s  personnel security clearance process, particularly problems related to  backlogs and the resulting delays in determining clearance eligibility. Since  fiscal year 2000, DOD has declared its personnel security clearance  investigations program to be a systemic weakness—a weakness that  affects more than one DOD component and may jeopardize the  department’s operations—under the Federal Managers’ Financial Integrity  Act of 1982. An October 2002 House Committee on Government Reform  report also recommended including DOD’s adjudicative process as a  material weakness. As of September 30, 2003 (the most recent data  available), DOD could not estimate the full size of its backlog, but we  identified over 350,000 cases exceeding established time frames for  determining eligibility.
The negative effects of delays in determining security clearance eligibility  are serious and vary depending on whether the clearance is being renewed  or granted to an individual for the first time. Delays in renewing previously  issued clearances can lead to heightened risk of national security breaches  because the longer individuals hold a clearance, the more likely they are to  be working with critical information and systems. Delays in issuing initial  clearances can result in millions of dollars of additional costs to the federal  government, longer periods of time needed to complete national security- related contracts, lost-opportunity costs if prospective employees decide to  work elsewhere rather than wait to get a clearance, and diminished quality  of the work because industrial contractors may be performing government  contracts with personnel who have the necessary security clearances but  are not the most experienced and best-qualified personnel for the positions  involved.
DOD has taken steps—such as hiring more adjudicators and authorizing  overtime for adjudicative staff—to address the backlog, but a significant  shortage of trained federal and private-sector investigative personnel  presents a major obstacle to timely completion of cases. Other  impediments to eliminating the backlog include the absence of an  integrated, comprehensive management plan for addressing a wide variety  of problems identified by us and others. In addition to matching  adjudicative staff to workloads and working with the Office of Personnel  Management (OPM) to develop an overall management plan, DOD needs to  develop and use new methods for forecasting clearance needs and  monitoring backlogs, eliminate unnecessary limitations on reciprocity (the  acceptance of a clearance and access granted by another department,  agency, or military service), determine the feasibility of implementing  initiatives that could decrease the backlog and delays, and provide better  oversight for all aspects of its personnel security clearance process.
The National Defense Authorization Act for Fiscal Year 2004 authorized the  transfer of DOD’s personnel security investigative function and over 1,800  investigative employees to OPM. The transfer is scheduled to take place  this month. While the transfer would eliminate DOD’s responsibility for  conducting the investigations, it would not eliminate the shortage of  trained investigative personnel needed to address the backlog. Although  DOD would retain the responsibility for adjudicating clearances, OPM  would be accountable for ensuring that investigations are completed in a  timely manner.
section_title: Management of Interagency Contracting
paragraphs: In recent years, federal agencies have been making a major shift in the way  they procure many goods and services. Rather than spending a great deal of  time and resources contracting for goods and services themselves, they are  making greater use of existing contracts already awarded by other  agencies. These contracts are designed to leverage the government’s  aggregate buying power and provide a much-needed simplified method for  procuring commonly used goods and services. Thus, their popularity is  gaining quickly. The General Services Administration (GSA) alone, for  example, has seen a nearly tenfold increase in interagency contract sales  since 1992, pushing the total sales mark up to $32 billion (see fig. 1). Other  agencies, such as the Department of the Treasury and the National  Institutes of Health, also sponsor interagency contracts.
These contract vehicles offer the benefits of improved efficiency and  timeliness; however, they need to be effectively managed. If they are not  properly managed, a number of factors can make these interagency  contract vehicles high risk in certain circumstances: (1) they are attracting  rapid growth of taxpayer dollars; (2) they are being administered and used  by some agencies that have limited expertise with this contracting method;  and (3) they contribute to a much more complex environment in which  accountability has not always been clearly established. Use of these  contracts, therefore, demands a higher degree of business acumen and  flexibility on the part of the federal acquisition workforce than in the past.  This risk is widely recognized, and the Congress and executive branch  agencies have taken several steps to address it. However, the challenges  associated with these contracts, recent problems related to their  management, and the need to ensure that the government effectively  implements measures to bolster oversight and control so that it is well  positioned to realize the value of these contracts, warrants designation of  interagency contracting as a new high-risk area.
Interagency contracts are awarded under various authorities and can take  many forms. Typically, they are used to provide agencies with commonly  used goods and services, such as office supplies or information technology  services. Agencies that award and administer interagency contracts usually  charge a fee to support their operations. These types of contracts have  allowed customer agencies to meet the demands for goods and services at  a time when they face growing workloads, declines in the acquisition  workforce, and the need for new skill sets.
Our work, together with that of some agency inspectors general, has  revealed instances of improper use of interagency contracts. For example,  we recently reviewed contracts and task orders awarded by DOD and  found some task orders under the GSA schedules that did not satisfy legal  requirements for competition because the work was not within the scope  of the underlying contracts. Similarly, the inspector general for the  Department of the Interior found that task orders for interrogators and  other intelligence services in Iraq were improperly awarded under a GSA  schedule contract for information technology services. More broadly, the  GSA inspector general conducted a comprehensive review of the  contracting activities of GSA’s Federal Technology Service (FTS), an entity  that provides contracting services for agencies across the government, and  reported that millions of dollars in fiscal year 2003 awards did not comply  with laws and regulations. Administration officials have acknowledged  that the management of interagency contracting needs to be improved.
Interagency contracting is being used more in conjunction with purchases  of services, which have increased significantly over the past several years  and now represent over half of federal contract spending. Agencies also are  buying more sophisticated or complex services, particularly in the areas of  information technology and professional and management support. In  many cases, interagency contracts provide agencies with easy access to  these services, but purchases of services require different approaches in  describing requirements, obtaining competition, and overseeing contractor  performance than purchases of goods. In this regard, we and others have  reported on the failure to follow prescribed procedures designed to ensure  fair prices when using schedule contracts to acquire services. At DOD, the  largest customer for interagency contracts, we found that competition  requirements were waived for a significant percentage of supply schedule  orders we reviewed, frequently based on an expressed preference to retain  the services of incumbent contractors. DOD concurred with our  recommendations to develop guidance for the conditions under which  waivers of competition may be used, require documentation to support  waivers, and establish approval authority based on the value of the  orders.
There are several causes of the deficiencies we and others have found in  the use of interagency contracts, including the increasing demands on the  acquisition workforce, insufficient training, and in some cases inadequate  guidance. Two additional factors are worth noting. First, the fee-for-service  arrangement creates an incentive to increase sales volume in order to  support other programs of the agency that awards and administers an  interagency contract. This may lead to an inordinate focus on meeting  customer demands at the expense of complying with required ordering  procedures. Second, it is not always clear where the responsibility lies for  such critical functions as describing requirements, negotiating terms, and  conducting oversight. Several parties—the requiring agency, the ordering  agency, and in some cases the contractor—are involved with these  functions. But, as the number of parties grows, so too does the need to  ensure accountability.
The Congress and the administration have taken several steps to address  the challenges of interagency contracting. In 2003, the Congress sought to  improve contract oversight and execution by enacting the Services  Acquisition Reform Act. The act created a new chief acquisition officer  position in many agencies and enhanced workforce training and  recruitment. More recently, the Congress responded to the misuse of  interagency contracting by requiring more intensive oversight of purchases  under these contracts. In July 2004, GSA launched “Get It Right,” an  oversight and education program, to ensure that its largest customer, DOD,  and other federal agencies properly use GSA’s interagency contracts and its  acquisition assistance services. Through this effort, GSA seeks to  demonstrate a strong commitment to customer agencies’ compliance with  federal contracting regulations and, among other things, improve processes  to ensure competition, integrity, and transparency. Additionally, to address  workforce issues, OMB, GSA, and DOD officials have said they are  developing new skills assessments, setting standards for the acquisition  workforce, and coordinating training programs aimed at improving the  capacity of the federal acquisition workforce to properly handle the  growing and increasingly complex workload of service acquisitions.
These recent actions are positive steps toward improving management of  interagency contracting, but, as with other areas, some of these actions are  in their early stages and others are still under development. In addition, it is  too early to tell whether all of the corrective actions will be effectively  implemented, although a recent limited review by the GSA inspector  general found some improvement at FTS from enhanced management  controls. Our work on major management challenges indicates that  specific and targeted approaches are also needed to address interagency  contracting risks across the government. Ensuring the proper use of  interagency contracts must be viewed as a shared responsibility of all  parties involved. But this requires that specific responsibilities be more  clearly defined. In particular, to facilitate effective purchasing through  interagency contracts, and to help ensure the best value of goods and  services, agencies must clarify roles and responsibilities and adopt clear,  consistent, and enforceable policies and processes that balance the need  for customer service against the requirements of contract regulations.  Internal controls and appropriate performance measures help ensure that  policies and processes are implemented and have the desired outcomes.
In addition, to be successful, efforts to improve the contracting function  must be linked to agency strategic plans. As with other governmentwide  high-risk areas, such as human capital and information security, effectively  addressing interagency contract management challenges will require  agency management to commit the necessary time, attention, and  resources, as well as the executive branch and the Congress to enhance  their oversight. Making these investments has the potential to improve the  government’s ability to acquire high-quality goods and services in an  efficient and effective manner, resulting in reduced costs, improved service  delivery, and strengthened public trust.
section_title: Emerging Areas
paragraphs: In addition to specific areas that we have designated as high risk, there are  other important broad-based challenges facing our government that are  serious and merit continuing close attention. One area of increasing  concern involves the need for the completion of comprehensive national  threat and risk assessments in a variety of areas. For example, emerging  requirements from the changing security environment, coupled with  increasingly limited fiscal resources across the federal government,  emphasize the need for agencies to adopt a sound approach to establishing  realistic goals, evaluating and setting priorities, and making difficult  resource decisions. We have advocated a comprehensive threat and/or risk  management approach as a framework for decision making that fully links  strategic goals to plans and budgets, assesses values and risks of various  courses of action as a tool for setting priorities and allocating resources,  and provides for the use of performance measures to assess outcomes.  Most prominently, two federal agencies with significant national security  responsibilities—DHS and DOD—are still in the beginning stages of  adopting a risk-based strategic framework for making important resource  decisions involving billions of dollars annually. This lack of a strategic  framework for investment decisions is one of the reasons that  implementing and transforming DHS, and DOD’s approach to business  transformation, have been designated as high-risk areas. At the same time,  this threat/risk assessment concept can be applied to a broad range of  existing federal government programs, functions, and activities.
The relatively new DHS, with an annual budget of over $40 billion, has not  completed risk assessments mandated by the Homeland Security Act of  2002 to set priorities to help focus its resources where most needed. In  performing its duties to protect the nation’s critical infrastructure, DHS has  not made clear the link between risk assessment and resource allocation,  for example, what criteria it initially used to select assets of national  importance and the basic strategy it uses to determine which assets  warrant additional protective measures, and by how much these measures  could reduce the risk to the nation. We have reviewed the work of several  of DHS’s component agencies that have taken some initial steps towards  risk management, but much remains to be done. DHS’s Immigration and  Customs Enforcement (ICE), as a first step toward developing budget  requests and workforce plans for fiscal year 2007 and beyond, has had its  Office of Investigations field offices conduct baseline threat assessments to  help identify risks. However, performance measures to assess how well a  particular threat has been addressed were not used for workforce planning  in ICE’s fiscal year 2006 budget request. DHS’s Customs and Border  Protection (CBP) has taken steps to address the terrorism risks posed by  oceangoing cargo containers. However, CBP has not performed a  comprehensive set of assessments vital for determining the level of risk for  oceangoing cargo containers and the types of responses necessary to  mitigate that risk. The need to use a risk management approach has been a  recurring theme in our previous work in transportation security. We  reported in 2003 that DHS’s Transportation Security Administration (TSA)  planned to adopt a risk management approach. To date, including in our  most recent work on general aviation security, we have found that TSA has  not fully integrated this approach, which includes assessments of threat,  vulnerability, and criticality, to help it prioritize its efforts. As a result, we  have recommended that TSA continue its efforts to integrate a risk  management approach into its processes.
DOD, with an annual budget of over $400 billion, exclusive of supplemental  funding, is in the process of transforming its force capabilities and business  processes. We have reported on limitations in DOD’s strategic planning and  budgeting, including the use of overly optimistic assumptions in estimating  funding needs, often resulting in a mismatch between programs and  budgets. In its strategic plan—the September 2001 Quadrennial Defense  Review—DOD outlined a new risk management framework consisting of  four dimensions of risk—force management, operational, future  challenges, and institutional—to use in considering trade-offs among  defense objectives and resource constraints. According to DOD, these risk  areas are to form the basis for DOD's annual performance goals. They will  be used to track performance results and will be linked to planning and  resource decisions. As of December 2004, DOD was still in the process of  implementing this approach departmentwide. It also remains unclear how  DOD will use this approach to measure progress in achieving business and  force transformation.
We believe that instilling a disciplined approach to identifying and  managing risk has broad applicability across a wide range of federal  programs, operations, and functions throughout the federal government.  This will be a continuing focus of our work in the future. More generally,  we will also continue to monitor other management challenges identified  through our work, including those discussed in our January 2003  Performance and Accountability Series: Major Management Challenges  and Program Risks (GAO-03-95 through GAO-03-118). While not high risk  at this time, these challenges warrant continued attention. For example, at  the U.S. Census Bureau, a number of operational and managerial  challenges loom large as the agency approaches its biggest enumeration  challenge yet, the 2010 Census. The Census Bureau will undertake an  important census test and make critical 2010 Census operational and  design decisions in the coming months—and we will continue to closely  monitor these challenges to assist the Congress in its oversight and the  Census Bureau in its decision making.
section_title: Progress Being Made in Other High-Risk Areas
paragraphs: For other areas that remain on our 2005 high-risk list, there have been  important but varying levels of progress, although not yet enough progress  to remove these areas from the list. Top administration officials have  expressed their commitment to maintaining momentum in seeing that high- risk areas receive adequate attention and oversight. Since our 2003 high- risk report, OMB has worked closely with a number of agencies that have  high-risk issues, in many cases establishing action plans and milestones for  agencies to complete needed actions to address areas that we have  designated as high risk. Such a concerted effort by agencies and ongoing  attention by OMB are critical; our experience over the past 15 years has  shown that perseverance is required to fully resolve high-risk areas. The  Congress, too, will continue to play an important role through its oversight  and, where appropriate, through legislative action targeted at the problems  and designed to address high-risk areas.   Examples of areas where  noticeable progress has been made include the following:  Strategic Human Capital Management.  Recognizing that federal  agencies must transform their organizations to meet the new challenges  of the 21st century and that their most important asset in this  transformation is their people, we first added human capital  management as a governmentwide high-risk issue in January 2001 to  help focus attention and resources on the need for fundamental human  capital reform requiring both administrative and legislative action.   Since then, the Congress and the agencies have made more progress in  revising and redesigning human capital policies, processes, and systems  than in the previous quarter century. The Congress has called on  agencies to do a better and faster job of hiring the right people with the  right skills to meet their critical missions, such as protecting the  homeland, and gave the agencies new flexibilities to meet this challenge.   The Congress has also granted agencies, such as DOD and DHS,  unprecedented flexibility to redesign their human capital systems,  including designing new classification and compensation systems,  which could serve as models for governmentwide change. Therefore,  effectively designing and implementing any resulting human capital  systems will be of critical importance not just for these agencies, but for  overall civil service reform. As part of the President’s Management  Agenda, the administration has also made strategic human capital  management one of its top five priorities and established a system for  holding agencies accountable for achieving this change. Some agencies  have begun to assess their future workforce needs and implement  available flexibilities to meet those needs. As a result of the ongoing  significant changes in how the federal workforce is managed, there is  general recognition that there should be a framework to guide human  capital reform built on a set of beliefs that entail fundamental principles  and boundaries that include criteria and processes that establish checks  and limitations when agencies seek and implement their authorities.
Federal Real Property. Since January 2003, the administration has  taken several key steps to address long-standing problems in managing  federal real property. First, in an effort to provide a governmentwide  focus on federal real property issues, the President added the Federal  Asset Management Initiative to the President’s Management Agenda and  signed Executive Order 13327 in February 2004. Under the order,  agencies are to designate a senior real property officer to, among other  things, identify and categorize owned and leased real property managed  by the agency and develop agency asset management plans. Agencies  such as DOD and the Department of Veterans Affairs (VA) have taken  other actions—DOD is preparing for a round of base realignments and  closures in 2005, and in May 2004, VA announced a wide range of asset  realignment decisions. These and other efforts are positive steps, but it  is too early to judge whether the administration’s focus on this area will  have a lasting impact. The underlying conditions and related obstacles  that led to our high-risk designation continue to exist. Remaining  obstacles include competing stakeholder interests in real property  decisions; various legal and budget-related disincentives to optimal,  businesslike, real property decisions; and the need for better capital  planning among agencies.
Other areas in which improvements have been shown include the Postal  Service’s transformation efforts and long-term outlook, modernizing  federal disability programs, the Medicaid program, HUD’s Single-Family  Mortgage Insurance and Rental Housing Assistance programs, and the  implementation and transformation of DHS.
section_title: Consolidation of High-Risk Areas
subsections: section_title: Collection of Unpaid Taxes and Earned Income Credit Noncompliance
paragraphs: We have combined our previous Collection of Unpaid Taxes and Earned  Income Credit Noncompliance high-risk areas into an area titled  Enforcement of Tax Laws. Collection of unpaid taxes was included in the  first high-risk series report in 1990, with a focus on the backlog of  uncollected debts owed by taxpayers. In 1995, we added Filing Fraud as a  separate high-risk area, narrowing the focus of that high-risk area in 2001 to  Earned Income Credit Noncompliance because of the particularly high  incidence of fraud and other forms of noncompliance in that program. We  expanded our concern about the Collection of Unpaid Taxes in our 2001  high-risk report to include not only unpaid taxes (including tax evasion and  unintentional noncompliance) known to the Internal Revenue Service  (IRS), but also the broader enforcement issue of unpaid taxes that IRS has  not detected. We made this change because of declines in some key IRS  collection actions as well as IRS’s lack of information about whether those  declines had affected voluntary compliance. Although the Congress  dedicated a specific appropriation for Earned Income Credit compliance  initiatives (both to curb noncompliance and encourage participation) in  fiscal years 1998 through 2003, with the 2004 budget the Congress returned  to appropriating a single amount for IRS to allocate among its various tax  law enforcement efforts.
In recent years, the resources IRS has been able to dedicate to enforcing  the tax laws have declined, while IRS’s enforcement workload—measured  by the number of taxpayer returns filed—has continually increased. As a  result, nearly every indicator of IRS’s coverage of its enforcement workload  has declined in recent years. Although in some cases workload coverage  has increased, overall IRS’s coverage of known workload is considerably  lower than it was just a few years ago. Although many suspect that these  trends have eroded taxpayers’ willingness to voluntarily comply—and  survey evidence suggests this may be true—the cumulative effect of these  trends is unknown because new research into the level of individual  taxpayer compliance is only now being completed by IRS after a long  hiatus. Based on this new research, in 2005, IRS intends to release a new  estimate of noncompliance and begin to use this research to improve  targeting of enforcement and other compliance resources.
Further, IRS’s workload has grown ever more complex as the tax code has  grown more complex. Complexity creates a fertile ground for those  intentionally seeking to evade taxes and often trips others into inadvertent  noncompliance. IRS is challenged to administer and explain each new  provision, thus absorbing resources that otherwise might be used to  enforce the tax laws.
At the same time, other areas of particularly serious noncompliance have  gained the attention of IRS and the Congress—such as abusive tax shelters  and schemes employed by businesses and wealthy individuals that often  involve complex transactions that may span national boundaries. Given the  broad decline in IRS’s enforcement workforce, the resulting decreased  ability to follow up on suspected noncompliance, the emergence of  sophisticated evasion concerns, and the unknown effect of these trends on  voluntary compliance, IRS is challenged on virtually all fronts in attempting  to ensure that taxpayers fulfill their obligations. IRS’s success in  overcoming these challenges becomes ever more important in light of the  nation’s large and growing fiscal pressures. Accordingly, we believe the  focus of concern on the enforcement of tax laws is not confined to any one  segment of the taxpaying population or any single tax provision. Our  designation of the enforcement of tax laws as a high-risk area embodies  this broad concern.
section_title: IRS Business Systems Modernization and IRS Financial Management
paragraphs: IRS has long relied on obsolete automated systems for key operational and  financial management functions, and its attempts to modernize these aging  computer systems span several decades. This long history of continuing  delays and design difficulties and their significant impact on IRS’s  operations led us to designate IRS’s systems modernization activities and  its financial management as high-risk areas in 1995. Since that time, IRS has  made progress in improving its financial management, such as enhancing  controls over hard copy tax receipts and data and budgetary activity, and  improving the accuracy of property records. Additionally, for the past 5  years, IRS has received clean audit opinions on its annual financial  statements and, for the past 3 years, has been able to achieve these  opinions within 45 days of the end of the fiscal year. However, IRS still  needs to replace its outdated financial management systems as part of its  business systems modernization program. Accordingly, since the resolution  of IRS’s remaining most serious and intractable financial management  problems largely depends upon the success of IRS’s business systems  modernization efforts, and since we have continuing concerns related to  this program, we are combining our two previous high-risk areas into one  IRS Business Systems Modernization high-risk area.
section_title: Major Management Challenges at Federal Agencies
paragraphs: We recently compiled lists of products issued since January 2003 related to  the major management challenges identified in the 2003 Performance and  Accountability Series. These lists, accompanied by narratives describing  the related major management challenges, are available on our Web site at  www.gao.gov/pas/2005.  As always, GAO stands ready to assist the  Congress as it develops its agenda and pursues these important high-risk  issues.
Mr. Chairman, Senator Akaka, and Members of the Subcommittee, this  concludes my testimony. I would be happy to answer any questions you  may have.
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