GAO's 2013 High-Risk Series: An Update
Published: 2013-02-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government is the world's largest and most complex entity, with about $3.5 trillion in outlays in fiscal year 2012 funding a broad array of programs and operations. GAO maintains a program to focus attention on government operations that it identifies as high risk due to their greater vulnerabilities to fraud, waste, abuse, and mismanagement or the need for transformation to address economy, efficiency, or effectiveness challenges. Since 1990, more than one-third of the areas previously designated as high risk have been removed from the list because sufficient progress was made to address the problems identified.
This biennial update describes the status of high-risk areas listed in 2011 and identifies any new high-risk area needing attention by Congress and the executive branch. Solutions to high-risk problems offer the potential to save billions of dollars, improve service to the public, and strengthen the performance and accountability of the U.S. government.
section_title: What GAO Found
paragraphs: In February 2011, GAO detailed 30 high-risk areas. Sufficient progress has been made to remove the high-risk designation from two areas.
Management of Interagency Contracting. Improvements include (1) continued progress made by agencies in addressing identified deficiencies, (2) establishment of additional management controls, (3) creation of a policy framework for establishing new interagency contracts, and (4) steps taken to address the need for better data on these contracts.
Internal Revenue Service Business Systems Modernization. We are removing this area because progress has been made in addressing significant weaknesses in information technology and financial management capabilities. IRS delivered the initial phase of its cornerstone tax processing project and began the daily processing and posting of individual taxpayer accounts in January 2012. This enhanced tax administration and improved service by enabling faster refunds for more taxpayers, allowing more timely account updates, and faster issuance of taxpayer notices. IRS has put in place close to 80 percent of the practices needed for an effective investment management process, including all of the processes needed for effective project oversight.
While these two areas have been removed from the High Risk List, GAO will continue to monitor them.
This year, GAO has added two areas.
Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks. Climate change creates significant financial risks for the federal government, which owns extensive infrastructure, such as defense installations; insures property through the National Flood Insurance Program; and provides emergency aid in response to natural disasters. The federal government is not well positioned to address the fiscal exposure presented by climate change, and needs a government wide strategic approach with strong leadership to manage related risks.
Mitigating Gaps in Weather Satellite Data. Potential gaps in environmental satellite data beginning as early as 2014 and lasting as long as 53 months have led to concerns that future weather forecasts and warnings--including warnings of extreme events such as hurricanes, storm surges, and floods--will be less accurate and timely. A number of decisions are needed to ensure contingency and continuity plans can be implemented effectively.
In the past 2 years notable progress has been made in the vast majority of areas that remain on GAO's High Risk List. This progress is due to the combined efforts of the Congress through oversight and legislation, the Office of Management and Budget through its leadership and coordination, and the agencies through their efforts to take corrective actions to address longstanding problems and implement related GAO recommendations.
section_title: What GAO Recommends
paragraphs: This report contains GAOs views on progress made and what remains to be done to bring about lasting solutions for each high-risk area. Perseverance by the executive branch in implementing GAOs recommended solutions and continued oversight and action by Congress are essential to achieving progress. GAO is dedicated to continue working with Congress and the executive branch to help ensure additional progress is made.

section_title: Letter
paragraphs: Mr. Chairman, Ranking Member Cummings, and Members of the  Committee:  Thank you for the opportunity to discuss our 2013 high-risk update.Since 1990, GAO has regularly reported on government operations that  we have identified as high risk due to their greater vulnerability to fraud,  waste, abuse, and mismanagement or the need for transformation to  address economy, efficiency, or effectiveness challenges. Our high-risk  program, supported by this committee and the Senate Committee on  Homeland Security and Governmental Affairs, has brought much-needed  focus to problems impeding effective government and costing billions of  dollars each year.
Since our last high-risk update in 2011, many notable positive  developments have occurred and progress has been made in the vast  majority of areas that remain on the list. Congressional oversight and  legislative action have been critical to this progress. Congress passed  numerous laws—eight of which are discussed in our report—targeting  both specific problems and the high-risk areas overall. In addition, top  administration officials have continued to show their commitment to  ensuring that high-risk areas receive attention and oversight. The Office  of Management and Budget (OMB) regularly convenes meetings for  agencies to provide progress updates on high-risk issues. When a high- risk issue area ranges across agencies, OMB coordinates with  representatives from multiple agencies to participate. These meetings  typically include OMB’s Deputy Director for Management, participating  agencies’ representatives to the President’s Management Council, other  administration and agency staff members responsible for addressing the  high-risk issue, as well as myself and others from GAO.
This year, due to significant progress made, we removed the high-risk  designation from two areas—Management of Interagency Contracting  and the Internal Revenue Service (IRS) Business Systems  Modernization. These areas demonstrate how sustained congressional  oversight and action, high-level administration attention, efforts of the  responsible agencies, and support from GAO through its many  recommendations and consistent follow-up on the implementation of  recommended actions lead to success in addressing risks.
While there has been notable progress, much remains to be done to  address the 30 high-risk issues that are currently on GAO’s High Risk  List. Our high risk update report and website provide details for each of  these issues, describing the nature of the risks, what actions have been  taken to address them, and what remains to be done to make further  progress. The details in our report, along with successful implementation  by agencies and continued oversight by Congress, can form a solid  foundation for progress to address risks and improve programs and  operations.
This year we designated two new high-risk areas—Limiting the Federal  Government’s Fiscal Exposure by Better Managing Climate Change  Risks and Mitigating Gaps in Weather Satellite Data. Lasting solutions to  these and the other 28 high-risk areas offer the potential to save billions  of dollars, dramatically improve service to the American public, and  strengthen public confidence and trust in the performance and  accountability of our national government.
subsections: section_title: High-Risk Designation Removed
paragraphs: When legislative, administration, and agency actions, including those in  response to our recommendations, result in significant progress toward  resolving a high-risk problem, we remove the high-risk designation. The  five criteria for determining if the high-risk designation can be removed  are (1) a demonstrated strong commitment to, and top leadership support  for, addressing problems; (2) the capacity to address problems; (3) a  corrective action plan; (4) a program to monitor corrective measures; and  (5) demonstrated progress in implementing corrective measures.
For our 2013 high-risk update, we determined that the following two areas  warranted removal from the High Risk List.
subsections: section_title: Management of Interagency Contracting
paragraphs: Interagency contracting—where one agency either places an order using  another agency’s contract or obtains contracting support services from  another agency—can help streamline the procurement process, take  advantage of unique expertise in a particular type of procurement, and  achieve savings. While this method of contracting can save the  government money and effort when properly managed, it also poses a  variety of risks.
In 2005, we designated the management of interagency contracting as  high risk due in part to unclear lines of accountability between customer  and assisting agencies and the potential for improper use, including out- of-scope work and noncompliance with competition requirements. We  identified the continuing need for additional management controls and  guidance and clearer definitions of roles and responsibilities as keys to  addressing these issues. We have also highlighted challenges agencies  faced in fully realizing the benefits of interagency contracts, including the  lack of data and the risk of potential duplication when new contracting  vehicles are created. To address these issues, we identified the need for  a policy framework and business case analysis requirements to support  the creation of certain new contracts and improved data on existing  interagency contracts.
As detailed in our 2013 high risk update report, we are removing the  management of interagency contracting from the High Risk List based on  the following:
Continued progress in addressing previously identified deficiencies. In  our 2009 and 2011 high-risk updates we noted improvements in  procedures used in making purchases on behalf of the Department of  Defense (DOD)—the largest user of interagency contracts. The DOD  Inspector General has also reported a significant decrease in  problems with DOD procurements through other federal agencies in  congressionally mandated reviews of interagency acquisitions. More  recently, we reported earlier this year that DOD substantially complied  with new requirements for interagency contract orders.
Strengthened management controls. In response to congressional  direction, Federal Acquisition Regulation (FAR) provisions on  interagency acquisitions were revised in 2010 to require that agencies  make a best procurement approach determination to justify the use of  an interagency contract and prepare written interagency agreements  outlining the roles and responsibilities of customer and assisting  organizations. OMB’s October 2012 analysis of reports from the 24  agencies that account for almost all contract spending  governmentwide, found that most had implemented management  controls to reinforce the new FAR requirements and strengthen the  management of interagency acquisitions.
New controls over the creation of new interagency contract vehicles.
In response to congressional direction and our prior recommendation,  OMB established a policy framework in September 2011 to govern the  creation of new interagency contract vehicles. The framework  addresses concerns about potential duplication by requiring agencies  to develop a thorough business case prior to establishing certain  contract vehicles.
Improved data on interagency contracts. OMB and the General  Services Administration have taken a number of steps to address the  need for better data on interagency contract vehicles. These efforts  should enhance both governmentwide efforts to manage interagency  contracts and agency efforts to conduct market research and  negotiate better prices.
Importantly, congressional oversight sustained over several years, has  been vital in addressing the issues that led this area to be designated  high risk.
Removing the management of interagency contracting from the High Risk  List does not mean that the federal government’s use of these contracts  is without challenges. But, we believe there are mechanisms in place that  OMB and federal agencies can use to identify and address interagency  contracting issues before they put the government at significant risk for  waste, fraud, or abuse. We also will continue to monitor developments in  this area.
section_title: IRS Business Systems Modernization
paragraphs: The Internal Revenue Service’s (IRS) Business Systems Modernization is  a multi-billion dollar, highly-complex effort that involves the development  and delivery of a number of modernized tax administration and internal  management systems as well as core infrastructure projects that are  intended to replace the agency’s aging business and tax processing  systems.
In 1995, we identified serious management and technical weaknesses in  IRS’s modernization program that jeopardized its successful completion.  We recommended many actions to fix the problems, and added IRS’s  modernization to our High Risk List. In 1995, we also added the agency’s  financial management to our High Risk List due to long-standing and  pervasive problems which hampered the effective collection of revenues  and precluded the preparation of auditable financial statements. We  combined the two issues into one high-risk area in 2005 since resolution  of the most serious financial management problems depended largely on  the success of the business systems modernization program.
We are removing IRS’s Business Systems Modernization program from  the High Risk List because of:
Progress in addressing weaknesses. In our 2007, 2009, and 2011  high risk updates, we reported that IRS continued to make progress in  addressing our recommendations. In January 2012, the agency  delivered the initial phase of its cornerstone tax processing project  and began the daily processing and posting of individual taxpayer  accounts. This enhanced tax administration and improved service by  enabling faster refunds for more taxpayers, allowing more timely  account updates, and faster issuance of taxpayer notices. Other  improvements made led us to conclude that IRS’s remaining  deficiencies in internal controls over information security no longer  constitute a material weakness for financial reporting as of September  30, 2012.
Commitment to sustaining progress in the future. In July 2011, we  reported that IRS had put in place close to 80 percent of the practices  needed for an effective investment management process, including all  of the processes needed for effective project oversight. We also  reported that IRS had embarked on an effort to improve its software  development practices using the Carnegie Mellon University Software  Engineering Institute’s Capability Maturity Model Integration (CMMI),  which calls for disciplined software development and acquisition  practices which are considered industry best practices. In September  2012, IRS’s application development organization reached CMMI  maturity level 3, a high achievement by industry standards.
Throughout the years, Congress conducted oversight of the Business  Systems Modernization program by, among other things, requiring that  IRS submit annual expenditure plans that needed to meet certain  conditions, including a review by GAO. Because of the significant  progress made in addressing the high-risk area, starting in fiscal year  2012, Congress did not require the submission of an annual expenditure  plan.
As with all areas removed from the High Risk List, we will continue to  monitor how future events unfold.
section_title: New High-Risk Areas
paragraphs: To determine which federal government programs and functions should  be added to the High Risk List, we consider whether the program or  function is of national significance or is key to government performance  and accountability. Further, we consider qualitative factors, such as  whether the risk  involves public health or safety, service delivery, national security,  national defense, economic growth, or privacy or citizens’ rights, or  could result in significant impaired service, program failure, injury or  loss of life, or significantly reduced economy, efficiency, or  effectiveness.
In addition, we also review the exposure to loss in quantitative terms such  as the value of major assets being impaired, revenue sources not being  realized, or major agency assets being lost, stolen, damaged, or wasted.  We also consider corrective measures planned or under way to resolve a  material control weakness and the status and effectiveness of these  actions.
This year, we added two new areas, delineated below, to the High Risk  List based on those criteria.
subsections: section_title: Limiting the Federal Government’s Fiscal Exposure by Better Managing Climate Change Risks
paragraphs: Climate change poses risks to many environmental and economic  systems—including agriculture, infrastructure, ecosystems, and human  health—and presents a significant financial risk to the federal  government. The United States Global Change Research Program  (USGCRP) has observed that the impacts and costliness of weather  disasters will increase in significance as what are considered “rare”  events become more common and intense due to climate change.
Among other impacts, climate change could threaten coastal areas with  rising sea levels, alter agricultural productivity, and increase the intensity  and frequency of severe weather events such as floods, drought, and  hurricanes.
Weather-related events have cost the nation tens of billions of dollars in  damages over the past decade. For example, in 2012, the administration  requested $60.4 billion for Superstorm Sandy recovery efforts. These  impacts pose significant financial risks for the federal government, which  owns extensive infrastructure, insures property through federal flood and  crop insurance programs, provides technical assistance to state and local  governments, and provides emergency aid in response to natural  disasters. However, the federal government is not well positioned to  address this fiscal exposure, partly because of the complex, cross-cutting  nature of the issue. Given these challenges and the nation’s precarious  fiscal condition, we have added limiting the federal government’s fiscal  exposure to climate change to our 2013 list of high-risk areas.
Climate change adaptation—defined as adjustments to natural or human  systems in response to actual or expected climate change—is a risk- management strategy to help protect vulnerable sectors and communities  that might be affected by changes in the climate. For example, adaptation  measures may include raising river or coastal dikes to protect  infrastructure from sea level rise, building higher bridges, and increasing  the capacity of storm water systems. Policymakers increasingly view  climate change adaptation as a risk-management strategy to protect  vulnerable sectors and communities that might be affected by changes in  the climate, but, as we reported in 2009, the federal government’s  emerging adaptation activities were carried out in an ad hoc manner and  were not well coordinated across federal agencies, let alone with state  and local governments.
The federal government has a number of efforts underway to decrease  domestic greenhouse gas emissions, but decreasing global emissions  depends in large part on cooperative international efforts. Further,  according to the National Research Council and USGCRP, greenhouse  gases already in the atmosphere will continue altering the climate system  for many decades. As such, the impacts of climate change can be  expected to increase fiscal exposure for the federal government in many  areas:
Federal government as property owner. The federal government owns  and operates hundreds of thousands of buildings and facilities, such  as defense installations, that could be affected by a changing climate.  In addition, the federal government manages about 650 million acres– –29 percent of the 2.27 billion acres of U.S. land––for a wide variety  of purposes, such as recreation, grazing, timber, and fish and wildlife.  In 2007, we recommended that that the Secretaries of Agriculture,  Commerce, and the Interior develop guidance for resource managers  that explains how they are expected to address the effects of climate  changes, and the three departments generally agreed with the  recommendation. We have ongoing work related to adapting  infrastructure and the management of federal lands to a changing  climate.
Federal insurance programs. Two important federal insurance  efforts—the National Flood Insurance Program (NFIP) and the  Federal Crop Insurance Corporation—are based on conditions,  priorities, and approaches that were established decades ago and do  not account for climate change. NFIP has been on our High Risk List  since March 2006 because of concerns about its long-term financial  solvency and related operational issues. In March 2007, we reported  that both of these insurance programs’ exposure to weather-related  losses had grown substantially, and that the agencies responsible for  them had done little to develop the information necessary to  understand their long-term exposure to climate change. We  recommended that the responsible agencies analyze the potential  long-term fiscal implications of climate change and report their  findings to the Congress. The agencies agreed with the  recommendation and contracted with experts to study their programs’  long-term exposure to climate change, but the results of the work  have not yet been reported to Congress.
In addition, in June 2011, we reported that external factors continue to  complicate the administration of the NFIP and affect its financial  stability. In particular, the Federal Emergency Management Agency  (FEMA), which administers the NFIP, was not been authorized to  account for long-term erosion when updating flood maps used to set  premium rates for the NFIP, increasing the likelihood that premiums  would not cover future losses. We suggested that Congress consider  authorizing the NFIP to account for long-term flood erosion in its flood  maps, and the Biggert-Waters Flood Insurance Reform Act of 2012  requires FEMA to use information on topography, coastal erosion  areas, changing lake levels, future changes in sea levels, and  intensity of hurricanes in updating its flood maps. While these  provisions respond to our suggestion to Congress, their ultimate  effectiveness will depend on their implementation by FEMA. It is too  early to evaluate such efforts, but we plan to examine the NFIP in the  near future.
Technical assistance to state and local governments. The federal  government invests billions of dollars annually in infrastructure  projects that state and local governments prioritize and supervise.  These projects have large up front capital investments and long lead  times that require decisions about how to address climate change to  be made well before its potential effects are discernable. We reported  in October 2009 that insufficient site-specific data—such as local  temperature and precipitation projections—make it hard for state and  local officials to justify the current costs of adaptation efforts for  potentially less certain future benefits. We recommended that the  appropriate entities within the Executive Office of the President  develop a strategic plan for adaptation that, among other things,  identifies mechanisms to increase the capacity of federal, state, and  local agencies to incorporate information about current and potential  climate change impacts into government decision making.
USGCRP’s 2012-2021 strategic plan for climate change science,  released in April 2012, recognizes this need by identifying enhanced  information management and sharing as a key objective, and  USGCRP is undertaking several actions designed to better coordinate  use and application of federal climate science. We have ongoing work  related to these issues. In addition, gaps in satellite coverage, which  could occur as soon as 2014, are expected to affect the continuity of  climate and space weather measurements important to developing  the information needed by state and local officials. According to  National Oceanic and Atmospheric Administration program officials, a  satellite data gap would result in less accurate and timely weather  forecasts and warnings of extreme events—such as hurricanes, storm  surges and floods. We have concluded that the potential gap in  weather satellite data is a high-risk area and added it to the High Risk  List this year as well.
Disaster aid. In the event of a major disaster, federal funding for  response and recovery comes from the Disaster Relief Fund  managed by FEMA and disaster aid programs of other participating  federal agencies. The federal government does not budget for these  costs and runs the risk of facing a large fiscal exposure at any time.  We reported in September 2012 that disaster declarations have  increased over recent decades to a record of 98 in fiscal year 2011  compared with 65 in 2004. Over that period, FEMA obligated more  than $80 billion in federal assistance for disasters. We found that  FEMA has had difficulty implementing longstanding plans to assess  national preparedness capabilities and that FEMA’s indicator for  determining whether to recommend that a jurisdiction receive disaster  assistance does not accurately reflect the ability of state and local  governments to respond to disasters. In September 2012, we  recommended, among other things, that FEMA develop a  methodology to more accurately assess a jurisdiction’s capability to  respond to and recover from a disaster without federal assistance.  FEMA concurred with this recommendation.
The Council on Environmental Quality coordinates federal environmental efforts and the  development of environmental policies and initiatives. The Office of Science and  Technology Policy was established by statute in 1976 to serve as a source of scientific  and technological analysis and judgment for the President with respect to major policies,  plans, and programs of the federal government, among other things. interagency climate change adaptation task force. However, a 2012  National Research Council report states that while the task force has  convened representatives of relevant agencies and programs, it has no  mechanisms for making or enforcing important decisions and priorities.
In May 2011, we found no coherent strategic government-wide approach  to climate change funding and that federal officials do not have a shared  understanding of strategic government-wide priorities.  At that time, we  recommended that the appropriate entities within the Executive Office of  the President clearly establish federal strategic climate change priorities,  including the roles and responsibilities of the key federal entities, taking  into consideration the full range of climate-related activities within the  federal government. The relevant federal entities have not directly  addressed this recommendation.
Federal agencies have made some progress toward better organizing  across agencies, within agencies, and among different levels of  government; however, the increasing fiscal exposure for the federal  government calls for more comprehensive and systematic strategic  planning including, but not limited to, the following:
A government-wide strategic approach with strong leadership and the  authority to manage climate change risks that encompasses the entire  range of related federal activities and addresses all key elements of  strategic planning.
GAO, Climate Change: Improvements Needed to Clarify National Priorities and Better  Align Them with Federal Funding Decisions, GAO-11-317 (Washington, D.C.: May 20,  2011).
More information to understand and manage federal insurance  programs’ long-term exposure to climate change and analyze the  potential impacts of an increase in the frequency or severity of  weather-related events on their operations.
A government-wide approach for providing (1) the best available  climate-related data for making decisions at the state and local level  and (2) assistance for translating available climate-related data into  information that officials need to make decisions.
Potential gaps in satellite data need to be effectively addressed.
Improved criteria for assessing a jurisdiction’s capability to respond  and recover from a disaster without federal assistance, and to better  apply lessons from past experience when developing disaster cost  estimates.
Additional information on Limiting the Federal Government’s Fiscal  Exposure by Better Managing Climate Change Risks is provided in the  2013 high risk update report.
section_title: Mitigating Gaps in Weather Satellite Data
paragraphs: For 2013, we are designating a new high-risk area—Mitigating Gaps in  Weather Satellite Data. We and others—including an independent review  team reporting to the Department of Commerce and the department’s  Inspector General—have raised concerns that problems and delays on  environmental satellite acquisition programs will result in gaps in the  continuity of critical satellite data used in weather forecasts and warnings.  The importance of such data was recently highlighted by the advance  warnings of the path, timing, and intensity of Superstorm Sandy.
Since the 1960s, the United States has used both polar-orbiting and  geostationary satellites to observe the earth and its land, oceans,  atmosphere, and space environments. Polar-orbiting satellites constantly  circle the earth in an almost north-south orbit providing global coverage of  environmental conditions that affect the weather and climate. As the earth  rotates beneath it, each polar-orbiting satellite views the entire earth’s  surface twice a day. In contrast, geostationary satellites maintain a fixed  position relative to the earth from a high-level orbit of about 22,300 miles  in space. Used in combination with ground, sea, and airborne observing  systems, both types of satellites have become an indispensable part of  monitoring and forecasting weather and climate. For example, polar- orbiting satellites provide the data that go into numerical weather  prediction models, which are a primary tool for forecasting weather days  in advance—including forecasting the path and intensity of hurricanes  and tropical storms. Geostationary satellites provide frequently-updated  graphical images that are used to identify current weather patterns and  provide short-term warnings.
For more than 40 years, the United States has operated two separate  operational polar-orbiting meteorological satellites systems: the Polar- orbiting Operational Environmental Satellite series, which is managed by  National Oceanic and Atmospheric Administration (NOAA)—a component  of the Department of Commerce; and the Defense Meteorological  Satellite Program (DMSP), which is managed by the Air Force. The  government also relies on data from a European satellite program, called  the Meteorological Operational (MetOp) satellite series. These satellites  are positioned so that they cross the equator in the early morning,  midmorning, and early afternoon in order to obtain regular updates  throughout the day.
With the expectation that combining the two separate U.S. polar satellite  programs would result in sizable cost savings, a May 1994 Presidential  Decision Directive required NOAA and DOD to converge the two  programs into a single new satellite acquisition, which became the  National Polar-orbiting Operational Environmental Satellite System  (NPOESS). However, in the years that followed, NPOESS encountered  significant technical challenges in sensor development and experienced  program cost growth and schedule delays, in part due to problems in the  program’s management structure. After several restructurings and  recurring challenges, in February 2010, the Executive Office of the  President’s Office of Science and Technology Policy announced that  NOAA and DOD would no longer jointly procure NPOESS; instead, each  agency would plan and acquire its own satellite system. Specifically,  NOAA, with support from the National Aeronautics and Space  Administration (NASA), would be responsible for the afternoon orbit, and  DOD would be responsible for the early morning orbit. The U.S.  partnership with the European satellite agency for data from the  midmorning orbit would continue as planned.
Subsequently, NOAA initiated its replacement program, the Joint Polar  Satellite System (JPSS). JPSS consists of a demonstration satellite— called the Suomi National Polar-orbiting Partnership (NPP)—launched in  October 2011; two satellites, with at least five instruments planned for  each, to be launched by March 2017 and December 2022, respectively;  two stand-alone satellites to accommodate three additional instruments;  and ground systems for the entire program. The program is currently  estimated to cost $12.9 billion. In June 2012, we reported that NOAA and  NASA made progress in establishing the JPSS program and in launching  and operating the demonstration satellite, but noted that program officials  expect there to be a gap in satellite observations before the first JPSS  satellite is launched.
Specifically, NOAA officials anticipate a gap in the afternoon orbit from 18  to 24 months between the time that NPP reaches the end of its lifespan  and when the first JPSS satellite is fully ready for operational use. We  identified other scenarios where the gap could last from 17 to 53 months.  For example, the gap would be 17 months if NPP lasts 5 years until  October 2016 and JPSS is launched as planned in March 2017 and  undergoes a 12-month on-orbit checkout before it is fully operational.  Alternatively, if NPP lasts only 3 years—which NASA engineers consider  possible due to poor workmanship in the fabrication of the instruments— and JPSS launches 1 year later than currently planned, the gap in  satellite observations could reach 53 months.
After NPOESS was disbanded, DOD also began planning its own follow- on polar satellite program. However, it halted work in early 2012, since it  still has two legacy DMSP satellites in storage that will be launched as  needed to maintain observations in the early morning orbit. The agency  currently plans to launch its two remaining satellites in 2014 and 2020.  Moreover, DOD is working to identify alternatives to meet its future  environmental satellite requirements. However, in June 2012, we reported  that there is a possibility of satellite data gaps in DOD’s early morning  orbit. The two remaining DMSP satellites may not work as intended  because they were built in the late 1990s and will be quite old by the time  they are launched. If the satellites do not perform as expected, a data gap  in the early morning orbit could occur as early as 2014.
Satellite data gaps in the morning or afternoon polar orbits would lead to  less accurate and timely weather forecasting; as a result, advanced  warning of extreme events would be affected. Such extreme events could  include hurricanes, storm surges, and floods. For example, the National  Weather Service performed case studies to demonstrate how its  forecasts would have been affected if there were no polar satellite data in  the afternoon orbit, and noted that its forecasts for the “Snowmaggedon”  winter storm that hit the Mid-Atlantic coast in February 2010 would have  predicted a less intense storm further east, with about half of the  precipitation at 3, 4, and 5 days before the event. Specifically, the models  would have under-forecasted the amount of snow by at least 10 inches.  Similarly, a European weather organization recently reported that  NOAA’s forecasts of Superstorm Sandy’s track could have been  hundreds of miles off without polar-orbiting satellites: rather than  identifying the New Jersey landfall within 30 miles 4 days before landfall,  the models would have shown the storm remaining at sea.
In June 2012, we reported that while NOAA officials communicated  publicly and often about the risk of a polar satellite data gap, the agency  had not established plans to mitigate the gap. At the time, NOAA officials  stated that the agency would continue to use existing satellites as long as  they provide data and that there were no viable alternatives to the JPSS  program. However, our report noted that a more comprehensive  mitigation plan was essential since it is possible that other governmental,  commercial, or foreign satellites could supplement the polar satellite data.  For example, other nations continue to launch polar-orbiting weather  satellites to acquire data such as sea surface temperatures, sea surface  winds, and water vapor. Also, over the next few years, NASA plans to  launch satellites that will collect information on precipitation and soil  moisture. Because it could take time to adapt ground systems to receive,  process, and disseminate an alternative satellite’s data, we noted that any  delays in establishing mitigation plans could leave the agency little time to  leverage its alternatives. We recommended that NOAA establish  mitigation plans for pending satellite gaps in the afternoon orbit as well as  potential gaps in the early morning orbit.
In September 2012, the Under Secretary of Commerce for Oceans and  Atmosphere (who is also the NOAA Administrator) reported that NOAA  had several actions under way to address polar satellite data gaps,  including (1) an investigation on how to maximize the life of the  demonstration satellite, (2) an investigation on how to accelerate the  development of the second JPSS satellite, and (3) the development of a  mitigation plan to address potential data gaps until the first JPSS satellite  becomes operational. The Under Secretary also directed NOAA’s  Assistant Secretary to, by mid-October 2012, establish a contract to  conduct an enterprise-wide examination of contingency options and to  develop a written, descriptive, end-to-end plan that considers the entire  flow of data from possible alternative sensors through data assimilation  and on to forecast model performance. In October 2012, NOAA issued a  mitigation plan for a potential gap in the afternoon orbit, between the  current polar satellite and the first JPSS satellite. The plan identifies and  prioritizes options for obtaining critical observations, including alternative  satellite data sources and improvements to data assimilation in models. It  also lists technical, programmatic, and management steps needed to  implement these options.
However, these plans are only the beginning. The agency must make  difficult decisions on which steps it will implement to ensure that its  mitigation plans are viable when needed. For example, NOAA must make  decisions about (1) whether and how to extend support for legacy satellite  systems so that their data might be available if needed, (2) how much  time and resources to invest in improving satellite models so that they  assimilate data from alternative sources, (3) whether to pursue  international agreements for access to additional satellite systems and  how best to resolve any security issues with the foreign data, (4) when  and how to test the value and integration of alternative data sources, and  (5) how these preliminary mitigation plans will be integrated with the  agency’s broader end-to-end plans for sustaining weather forecasting  capabilities. NOAA must also identify time frames for when these  decisions will be made. We have ongoing work assessing NOAA’s efforts  to limit and mitigate potential polar satellite data gaps.
Geostationary environmental satellites transmit frequently updated  images of the weather currently affecting the United States to every  national weather forecast office in the country. These are the satellite  images that the public often sees on television news programs. NOAA  plans to have its $10.9 billion Geostationary Operational Environmental  Satellite-R (GOES-R) series replace the current fleet of geostationary  satellites, which will begin to reach the end of their useful lives in 2015.  The GOES-R program has undergone a series of changes since 2006  and now consists of four geostationary satellites and a ground system.  However, problems with instrument and ground system development  caused a 19-month delay in completing the program’s preliminary design  review, which occurred in February 2012. In June 2012, we reported that  GOES-R schedules were not fully reliable and that they could contribute  to delays in satellite launch dates. Program officials acknowledged that  the likelihood of meeting the October 2015 launch date was 48 percent.
While NOAA’s policy is to have two operational satellites and one backup  satellite in orbit at all times, continued delays in the launch of the first  GOES-R satellite could lead to a gap in satellite coverage. This policy  proved useful in December 2008 and again in September 2012 when the  agency experienced problems with one of its operational satellites, but  was able to move its backup satellite into place until the problems were  resolved. However, beginning in April 2015, NOAA expects to have only  two operational satellites and no backup satellite in orbit until GOES-R is  launched and completes an estimated 6-month post-launch test period.  As a result, there could be a year or more gap during which time a  backup satellite would not be available. If NOAA were to experience a  problem with either of its operational satellites before GOES-R is in orbit  and operational, it would need to rely on older satellites that are beyond  their expected operational lives and may not be fully functional. Any  further delays in the launch of the first satellite in the GOES-R program  would likely increase the risk of a gap in satellite coverage.
In September 2010, we reported that NOAA had not established  adequate continuity plans for its geostationary satellites. Specifically, in  the event of a satellite failure, with no backup available, NOAA planned to  reduce its operations to a single satellite and if available, rely on a  satellite from a foreign nation. However, the agency did not have plans  that included processes, procedures, and resources needed to transition  to a single or a foreign satellite. Without such plans, there would be an  increased risk that users would lose access to critical data. We  recommended that NOAA develop and document continuity plans for the  operation of geostationary satellites that included implementation  procedures, resources, staff roles, and timetables needed to transition to  a single satellite, a foreign satellite, or other solution. In September 2011,  NOAA developed an initial continuity plan that generally includes these  elements. Specifically, NOAA’s plan identified steps it would take in  transitioning to a single or foreign satellite; the amount of time this  transition would take; roles of product area leads; and resources such as  imaging product schedules, disk imagery frequency, and staff to execute  the changes. In December 2012, NOAA issued an updated plan that  provides additional contingency scenarios.
However, it is not evident that critical steps have been implemented,  including simulating continuity situations and working with the user  community to account for differences in products under different  continuity scenarios. These steps are critical for NOAA to move  forward in documenting the processes it will take to implement its  contingency plans. Once these activities are completed, NOAA should  update its contingency plan to provide more details on its contingency  scenarios, associated time frames, and any preventative actions it is  taking to minimize the possibility of a gap. We have ongoing work  assessing NOAA’s actions to ensure that its plans are viable and that  continuity procedures are in place and have been tested. Additional  information on Mitigating Gaps in Weather Satellite Data is provided in  our high-risk update report.
section_title: High Risk Areas Narrowing Due to Progress
paragraphs: Since our 2011 update, sufficient progress has been made to narrow the  scope of the following three areas.
subsections: section_title: Management of Federal Oil and Gas Resources
paragraphs: In 2011, we added the Department of the Interior’s (Interior) management  of oil and gas on leased federal lands and waters to GAO’s High Risk List  for three reasons; (1) Interior did not have reasonable assurance that it  was collecting its share of revenue from oil and gas produced on federal  lands; (2) Interior was unable to hire, train, and retain sufficient staff to  provide oversight and management of oil and gas operations on federal  lands and waters; and (3) Interior was reorganizing its oversight of  offshore oil and gas activities in the immediate aftermath of the  Deepwater Horizon incident. Since 2011, sufficient progress has been  made in one of these three areas—Interior’s reorganization of its  oversight of offshore oil and gas activities—but Interior’s revenue  collection and human capital challenges remain a concern.
The explosion onboard the Deepwater Horizon and oil spill in the Gulf of  Mexico in April 2010 emphasized the importance of Interior’s  management of permitting and inspections to ensure operational and  environmental safety. In 2011, Interior undertook a substantial  reorganization of its oversight of offshore oil and gas activities that  included establishing three new bureaus and separating revenue  collection and oversight functions. At that time, we raised concerns about  Interior’s ability to continue to perform these functions while undertaking  this reorganization. In July 2012, we concluded that Interior had  fundamentally completed its reorganization. However, Interior continues  to face challenges in collecting the appropriate amount of royalties from  oil and gas produced on federal lands and waters. We have  recommended that Interior reassess its revenue collection policies and  processes and correct problems with its data on oil and gas production,  and Interior is working to implement a number of these recommendations.
We are reviewing Interior’s revenue collection practices and will evaluate,  among other things, Interior’s progress in implementing these  recommendations. Interior also continues to face problems in hiring,  training, and retaining staff at the bureaus responsible for managing  federal oil and gas resources, potentially placing both the environment  and royalties at risk. We are reviewing Interior’s human capital  challenges, focusing on the causes of these challenges and the actions  Interior is taking to address them.
section_title: Department of Energy’s Contract Management for the National Nuclear Security Administration and Office of Environmental Management
paragraphs: To recognize progress at the Department of Energy (DOE) on the  National Nuclear Security Administration’s (NNSA) and Office of  Environmental Management’s (EM) execution of nonmajor projects— projects with values of less than $750 million—we are shifting the focus of  its high-risk designation more to major contracts and projects executed by  NNSA and EM, those contracts and projects with values of $750 million or  greater. These contracts include those for management and operating  contracts for national laboratories and nuclear production plants—such as  Los Alamos National Laboratory—that are government owned and  contractor operated, as well as for capital asset projects—such as the  Hanford Tank Waste Treatment and Immobilization Plant under  construction in Hanford, Washington, and the Mixed Oxide Fuel  Fabrication Facility under construction near Aiken, South Carolina— projects that are currently estimated to cost $13.4 billion and $4.9 billion  respectively with cost increases anticipated.
Two of our reviews completed in 2012 focused on nonmajor projects  found that these projects were being completed in large part, although  additional and sustained attention by DOE is needed to adequately set  and document performance baselines and further demonstrate that these  actions result in improved performance. These reports included  recommendations to DOE to clearly define, document, and track the  scope, cost, and completion date targets for each of its projects, as  required by DOE’s project management order. DOE agreed with these  recommendations. With further monitoring of this area to ensure that  progress is sustained, coupled with continued efforts and commitment by  top leadership to address contract and project management weaknesses,  nonmajor project performance issues will have been sufficiently  addressed.
Significant challenges remain for the successful execution of major  projects. NNSA is tasked with modernizing the nation’s aging nuclear  weapons production facilities, a difficult effort that will take years and cost  billions of dollars. EM faces ongoing complex and long-term challenges in  removing radioactive and hazardous chemical contaminants—left over  from decades of weapons production—from soil, groundwater, and  facilities. Billions of dollars have already been spent, and will continue to  be spent over the coming decades to treat and dispose of this waste.  NNSA and EM are currently managing 10 major projects with combined  estimated costs totaling as much as $65.7 billion.
As part of this high-risk update, we examined these 10 projects but were  only able to analyze changes in schedule estimates for 5 projects and  cost estimates for 7 projects because of limitations in the data. For these  projects, we determined that DOE has added as much as 38.5 years to  their initial schedules and $16.5 billion to original cost estimates with  further delays and cost increases anticipated. For example, since we  reported in February 2011 that NNSA’s project to design and construct a  new Uranium Processing Facility at the Y-12 National Security Complex  had experienced nearly seven-fold cost growth from its 2004 estimate to  the current estimate of between $4.2 billion and $6.5 billion, the facility  will be redesigned to correct issues concerning processing equipment  with the potential for significant additional cost and schedule delay. NNSA  and EM will remain on the High Risk List until DOE can consistently  demonstrate that recent changes to policies and processes are resulting  in improved performance on major projects.
section_title: Strengthening Department of Homeland Security Management Functions
paragraphs: In 2003, we designated implementing and transforming the Department of  Homeland Security (DHS) as high risk because DHS had to transform 22  agencies—several with major management challenges—into one  department. Further, failure to effectively address DHS’s management  and mission risks could have serious consequences for U.S. national and  economic security. Given the significant effort required to build and  integrate a new department as large and complex as DHS, our initial high  risk designation focused on the department’s initial transformation and  subsequent implementation efforts, to include associated management  and programmatic challenges.
Over the past 10 years, the focus of this high-risk area has evolved in  tandem with DHS’s maturation and evolution. The overriding tenet has  consistently remained the department’s ability to build a single, cohesive  and effective department that is greater than the sum of its parts—a goal  that requires effective collaboration and integration of its various  components and management functions. In 2007, in reporting on DHS’s  progress since its creation, as well as in our 2009 high risk update, we  noted that DHS had made more progress in implementing its range of  missions than in its management functions, and that continued work was  needed to address an array of programmatic and management  challenges.
DHS’s initial focus on mission implementation was understandable given  the critical homeland security needs facing the nation after the  department’s establishment, and the challenges posed by its creation,  integration and transformation. As DHS continued to mature, and as we  reported in our assessment of DHS’s progress and challenges 10 years  after 9/11, we found that the department implemented key homeland  security operations and achieved important goals in many areas to create  and strengthen a foundation to reach its potential. However, we also  identified that more work remained for DHS to address weaknesses in its  operational and implementation efforts, and to strengthen the efficiency  and effectiveness of those efforts. We further reported that continuing  weaknesses in DHS’s management functions had been a key theme  impacting the department’s implementation efforts. Recognizing DHS’s  progress in transformation and mission implementation, our 2011 high  risk update focused on the continued need to strengthen DHS’s  management functions (acquisition, information technology, financial  management, and human capital) and integrate those functions within  and across the department, as well as the impact of these challenges on  the department’s ability to effectively and efficiently carry out its missions.
While challenges remain for DHS to address across its range of missions,  the department has made considerable progress in transforming its  original component agencies into a single cabinet-level department and  positioning itself to achieve its full potential. Important strides have also  been made in strengthening the department’s management functions and  in integrating those functions across the department, particularly in recent  years. For example, DHS has chartered eight Centers of Excellence to  enhance component acquisition capabilities, defined and begun to  implement a vision for a tiered governance structure intended to improve  its information technology program and portfolio management, obtained a  qualified audit opinion on its fiscal year 2012 financial statements, and  issued a workforce strategy and a revised Workforce Planning Guide to  help the department address its human capital challenges and plan for its  workforce needs.
However, DHS still has considerable work ahead in many areas. For  example, in September 2012, we reported that most of DHS’s major  acquisition programs continue to cost more than expected, take longer to  deploy than planned, or deliver less capability than promised. We  identified 42 programs that experienced cost growth or schedule slips, or  both, with 16 of the programs’ costs increasing from a total of $19.7 billion  in 2008 to $52.2 billion in 2011—an aggregate increase of 166 percent.  Further, while DHS has defined and begun to implement a vision for a  tiered governance structure to improve information technology (IT)  management, we reported in July 2012 that the governance structure  covers less than 20 percent (about 16 of 80) of DHS’s major IT  investments and 3 of its 13 portfolios. DHS has also been unable to  obtain an audit opinion on its internal controls over financial reporting, and  needs to obtain and sustain unqualified audit opinions for at least two  consecutive years on the department-wide financial statements. Finally,  federal surveys have consistently found that DHS employees are less  satisfied with their jobs than the government-wide average. Key to  addressing the department’s management challenges is DHS  demonstrating the ability to achieve sustained progress across the 31  actions and outcomes we identified as needed to address the high-risk  designation, to which DHS agreed. As shown in table 1, we believe DHS  has fully addressed 6, mostly addressed 2, partially addressed 16, and  initiated 7 of the 31 key actions and outcomes.
To more fully address GAO’s high-risk designation, continued progress is  needed in order to mitigate the risks that management weaknesses pose  to mission accomplishment and the efficient and effective use of the  department’s resources. In particular, the department needs to  demonstrate continued progress in implementing and strengthening key  management initiatives and addressing corrective actions and outcomes.  Therefore, we are narrowing the scope of the high-risk area and changing  the name from Implementing and Transforming the Department of  Homeland Security to Strengthening the Department of Homeland  Security Management Functions to reflect this focus.
section_title: Modified High-Risk Area
paragraphs: One area—Modernizing the Outdated U.S. Financial Regulatory  System—has been modified due to changing circumstances to include  the Federal Housing Administration (FHA). To reflect these changing  circumstances, the name of the area has been changed as well.
subsections: section_title: Modernizing the U.S. Financial Regulatory System and Federal Role in Housing Finance
paragraphs: We first designated this area as high risk in 2009 due to the urgent need  to reform the fragmented and outdated U.S. financial regulatory system.  As detailed in our 2013 high risk update report, many actions are  underway to implement oversight by new regulatory bodies and new  requirements for market participants, although many rulemakings remain  unfinished. Among the additional actions needed are resolving the role of  the two housing-related government-sponsored enterprises (GSE)— Fannie Mae and Freddie Mac—that continue operating under government  conservatorships. However, a new challenge for the markets has also  evolved as the decline in private sector participation in housing finance  that began with the 2007-2009 financial crisis has resulted in much  greater activity by FHA, whose single-family loan insurance portfolio has  grown from about $300 billion in 2007 to more than $1.1 trillion in 2012.  Although required to maintain capital reserves equal to at least 2 percent  of its portfolio, FHA’s capital reserves have fallen below this level, due  partly to increases in projected defaults on the loans it has insured. As a  result, we are modifying this high-risk area to include FHA and  acknowledge the need for actions beyond those already taken to help  restore FHA’s financial soundness and define its future role. One such  action would be to determine the economic conditions that FHA’s primary  insurance fund would be expected to withstand without drawing on the  Treasury. Recent events suggest that the 2-percent capital requirement  may not be adequate to avoid the need for Treasury support under  severe stress scenarios. Additionally, actions to reform GSEs and to  implement mortgage market reforms in the Dodd-Frank Act will need to  consider the potential impacts on FHA’s risk exposure.
section_title: Progress on Remaining High-Risk Areas
paragraphs: There has been notable progress on the vast majority of the issues that  remain on the High Risk List. The nation cannot afford to allow problems  to persist. Addressing high-risk problems can save billions of dollars each  year. Several areas on the High Risk List illustrate both the challenges of  addressing difficult and tenacious high-risk problems and the  opportunities for savings that can accrue if progress is made to address  high-risk problems.
subsections: section_title: Protecting Public Health through Enhanced Oversight of Medical Products
paragraphs: Congress, the administration, and the Food and Drug Administration  (FDA) have all taken actions to improve the agency’s oversight of medical  products—drugs, biologics, and medical devices—marketed in the United  States. The recently enacted Food and Drug Administration Safety and  Innovation Act of 2012 (Public Law 112-144) included several provisions  to enhance FDA’s oversight that reflects recommendations we have  made. For example, the law directed FDA to take a risk-based approach  in selecting foreign drug establishments for inspections, as we  recommended in September 2008. It also required FDA to improve  oversight of medical device recalls by directing FDA to take actions  consistent with the recommendations in our June 2011 report. In addition,  the law addressed the problem of drug shortages by requiring  manufacturers to advise FDA of any changes that could affect the supply  of their drugs, as we suggested in November 2011. Further, the President  issued an Executive Order in October 2011 that instructs FDA to expedite  review of applications to market drugs that would help to prevent or  resolve shortages.
FDA has also taken important steps. For example, as we recommended,  FDA developed an evidence-based estimate of its resource needs and  improved the quality of some of the data it uses to manage its foreign  drug inspection program. This is important progress. Nevertheless, we  believe that FDA must do more to bolster its oversight of medical  products. FDA needs to fully implement the provisions in the Food and  Drug Administration Safety and Innovation Act cited above and address  other outstanding concerns. Specifically, FDA needs to:  strengthen its Drug Shortage Program by assessing program  resources, systematically tracking data on shortages, considering the  availability of medically necessary drugs as a strategic priority, and  developing relevant results-oriented performance metrics to gauge the  agency’s response to shortages;  improve oversight of medical device recalls by routinely assessing  information on device recalls, clarifying procedures for conducting  recalls, developing criteria for evaluating the effectiveness of recalls,  and documenting the agency’s basis for terminating individual recalls;  implement the Safe Medical Devices Act of 1990;  conduct more inspections of foreign establishments manufacturing  medical products for the U.S. market and utilize new authority to take  a risk-based approach in selecting foreign drug establishments to  ensure that they are inspected at a frequency comparable to domestic  establishments with similar characteristics; emphasize the importance of timely medical product reviews,  particularly for medical devices; and  track applications to market medical products for children.
section_title: Pension Benefit Guaranty Corporation Insurance Programs
paragraphs: The Pension Benefit Guaranty Corporation (PBGC) insures the pension  benefits of 43 million American workers and retirees participating in nearly  26,000 private sector defined benefit plans through its single-employer  and multiemployer insurance programs. Because of long-term challenges  related to PBGC’s governance and funding structure, PBGC’s financial  future is uncertain. At the end of fiscal year 2012, PBGC’s net  accumulated financial deficit was $34 billion—an increase of more than  $23 billion from the end of fiscal year 2008.
Both Congress and PBGC have taken significant steps to address many  of our concerns with the agency’s overall management and governance  structure, reflecting increased top-level attention to the challenges facing  this agency. In July 2012, the Moving Ahead for Progress in the 21st  Century Act (MAP-21) became law, with several provisions pertaining to  PBGC. These measures called for stabilizing sponsors’ pension  contribution requirements, adjusting premium rates, as well as  strengthening PBGC’s governance in various ways. For example, the law  calls for PBGC’s Board of Directors to meet more regularly, four times a  year; PBGC’s Inspector General to report to the Board; creation of new  positions for a risk management officer and a participant and plan  sponsor advocate; an independent peer review of PBGC’s insurance  modeling system, to be conducted annually; and a study to be conducted  by the National Academy of Public Administration Association on possible  changes to PBGC’s governance structure. We have long recommended  that the composition of PBGC’s board—currently made up of the  Secretaries of the Treasury, Commerce, and Labor—be expanded to  include additional members with diverse knowledge and expertise useful  to PBGC’s mission.
PBGC also has taken steps to address several areas of weakness noted  in our previous reports. For example, to improve its asset management,  PBGC issued a new investment policy statement in May 2011 and has  subsequently aligned its portfolio with these new objectives. To enhance  understanding of potential reforms to its premium structure, PBGC  modeled various options for adjusting premiums to better reflect the risk  of future claims. To strengthen the accountability of its contract  management, PBGC implemented new practices requiring documentation  of the decision to use contractors instead of federal employees, annual  reviews of contract files, and evaluation of staff’s performance of contract  monitoring duties. However, despite these efforts, certain challenges  related to PBGC’s governance and funding structure remain. To improve  the stability of PBGC’s insurance programs, we believe further  congressional action should be considered with respect to: expanding  and diversifying PBGC’s board, redesigning PBGC’s premium structure,  strengthening pension plan funding requirements, and developing a  strategy for PBGC’s long-term financial solvency as the defined benefit  sector continues to decline.
section_title: DOD Supply Chain Management
paragraphs: DOD has taken positive steps to address weaknesses in its supply chain,  particularly in the management of spare parts inventories. Our prior work  reviewing spare parts management at the military services and the  Defense Logistics Agency (DLA) identified ineffective and inefficient  inventory management practices. Problems with accurately forecasting  demand for spare parts have resulted in DOD purchasing and storing  billions of dollars worth of excess inventory. For example, DOD’s most  recent available data shows that in September 2011 it had $9.2 billion  worth of on-hand excess inventory, categorized for potential reuse or  disposal, and $523 million worth of on-order excess inventory, already  purchased but likely to be excess due to changes in requirements. In  response to a provision of the National Defense Authorization Act for  fiscal year 2010, DOD submitted a corrective action plan to Congress in  November 2010 aimed at reducing excess inventory by improving  inventory management practices. DOD established overarching goals in  the plan to reduce on-hand excess inventory and on-order excess  inventory. Additionally, DOD developed actions to improve inventory  management in nine key areas, including improving demand forecasting  for spare parts.
We reported in 2012 that DOD had made progress in implementing its  inventory improvement plan and was tracking reductions to its excess  inventory. With respect to on-hand excess inventory, DOD has met its  fiscal year 2012 target of having no more than 10 percent of its inventory  categorized as on-hand excess. Also, DOD reported that from fiscal years  2009 to 2011 it had reduced on-order excess inventory by approximately  $632 million—a reduction that achieved its initial target 4 years early.  However, DOD continues to maintain significant quantities of excess  inventory and its plan to improve inventory management practices runs  through 2015. As implementation continues, DOD needs to monitor its  progress in achieving the targets for on-order and on-hand excess  inventory and update the targets, as necessary, to ensure the department  has challenging, yet achievable targets to guide continued improvement.  Moreover, challenges remain in improving demand forecasting;  accelerating the use of modeling to determine the optimal number and  types of parts needed at the wholesale and retail levels to achieve  readiness and cost goals; and implementing revised DOD guidance  outlining the processes and procedures for retaining inventory. As it  implements the remainder of its plan, DOD will need to address these  areas and demonstrate sustained progress in implementing corrective  measures and achieving results.
section_title: Sustaining Attention on High-Risk Programs
paragraphs: Overall, the government continues to take high-risk problems seriously  and is making long-needed progress toward correcting them. Congress  has acted to address several individual high-risk areas through hearings  and legislation. GAO’s high-risk update and high risk website,  http://www.gao.gov/highrisk/, can help inform the oversight agenda for the  113th Congress and guide efforts of the administration and agencies to  improve government performance and reduce waste and risks. In support  of Congress and to further progress to address high risk issues, GAO  continues to review efforts and make recommendations to address high  risk areas problems. As an example, today we are issuing our review of  the nation’s overall cybersecurity strategy. Continued perseverance in  addressing high-risk areas will ultimately yield significant benefits.
Thank you, Mr. Chairman, Ranking Member Cummings, and Members of  the Committee. This concludes my testimony. I would be pleased to  answer any questions.
For further information on this testimony, please contact J. Christopher  Mihm at (202) 512-6806 or mihmj@gao.gov. Contact points for the  individual high-risk areas are listed in the report and on our high-risk web  site. Contact points for our Congressional Relations and Public Affairs  offices may be found on the last page of this statement.
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