GAO's 2011 High Risk Series: An Update
Published: 2011-02-17T00:00:00

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 2010 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. This testimony summarizes GAO's 2011 High-Risk Update, which describes the status of high-risk areas listed in 2009 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: This year, GAO removed the high-risk designation from two areas--the DOD Personnel Security Clearance Program and the 2010 Census--and designated one new high-risk area--Interior's Management of Federal Oil and Gas Resources. These changes bring GAO's 2011 High-Risk List to a total of 30 areas. While many positive developments have occurred, additional progress is both possible and needed in all 30 high-risk areas to save billions of dollars and further improve the performance of federal programs and operations. Congressional oversight and sustained attention by top administration officials are essential to ensuring further progress. The high-risk effort is a top priority for GAO. Working with Congress, agency leaders, and the Office of Management and Budget, GAO will continue to provide insights and recommendations on needed actions to solve high-risk areas. Regarding the new high-risk area, Interior does not have reasonable assurance that it is collecting its share of billions of dollars of revenue from oil and gas produced on federal lands, and it continues to experience problems in hiring, training, and retaining sufficient staff to provide oversight and management of oil and gas operations on federal lands and waters. Further, Interior recently began restructuring its oil and gas program, which is inherently challenging, and there are many open questions about whether Interior has the capacity to undertake this reorganization while carrying out its range of responsibilities, especially in a constrained resource environment. While there has been some progress on nearly all of the issues that remain on the High-Risk List, the nation cannot afford to allow problems to persist. This statement discusses opportunities for savings that can accrue if progress is made to address high-risk problems. For example: (1) Billions of dollars are estimated in Medicare and Medicaid improper payments. The effective implementation of recent laws, including the Improper Payments Elimination and Recovery Act of 2010, and administration guidance will be key factors in determining the overall effectiveness of reducing improper payments in the Medicare and Medicaid programs. (2) Federal agencies' real property holdings include thousands of excess and/or underutilized buildings and cost over $1.6 billion annually to operate. If this issue is not addressed, the costs to maintain these properties will continue to rise. (3) Over the next 5 years, the Department of Defense (DOD) expects to invest over $300 billion (in fiscal year 2011 dollars) on the development and procurement of major defense acquisition programs. DOD must get better value for its weapon system spending and find ways to deliver needed capability to the warfighter for less than it has spent in the past. The High-Risk update 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: Thank you for the opportunity to discuss GAO’s 2011 High-Risk update.  This year, GAO removed the high-risk designation from two areas—the  DOD Personnel Security Clearance Program and the 2010 Census—and  designated one new high-risk area—Interior’s Management of Federal Oil  and Gas Resources. These changes bring GAO’s 2011 High-Risk List to a  total of 30 areas, each of which is discussed in detail in our report and  updated on our Web site. Those discussions include the nature of the risk,  progress made since our last High-Risk update in 2009, and the specific  actions needed for additional progress.
While many positive developments have occurred, additional progress is  both possible and needed in all 30 high-risk areas to save billions of dollars  and further improve the performance of federal programs and operations.  In that regard, I want to commend you, Mr. Chairman and the committee  for holding this hearing to draw needed attention to these important  problems. Congressional oversight and sustained attention by top  administration officials are essential to ensuring further progress. Also,  please be assured the high-risk effort is a top priority for GAO and we will  continue to provide insights and recommendations on needed actions to  address high-risk areas, working with Congress, agency leaders, and the  Office of Management and Budget (OMB).
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 2011 high-risk update, we determined that two areas warranted  removal from the High-Risk List: the Department of Defense (DOD)  Personnel Security Clearance Program and the 2010 Census. As we have  with areas previously removed from the High-Risk List, we will continue to  monitor these areas, as appropriate, to ensure that the improvements we  have noted are sustained. If significant problems again arise, we will  consider reapplying the high-risk designation.
subsections: section_title: Department of Defense Personnel Security Clearance Program
paragraphs: We are removing DOD’s personnel security clearance program from the  High-Risk List because of the agency’s progress in timeliness and the  development of tools and metrics to assess quality, as well as its  commitment to sustaining progress. Importantly, continued congressional  oversight and the committed leadership of the Suitability and Security  Clearance Performance Accountability Council (Council)—which is  responsible for overseeing security clearance reform efforts—have greatly  contributed to the progress of DOD and governmentwide security  clearance reform.
DOD officials, in coordination with the Council, have demonstrated a  strong commitment to, and a capacity for, addressing security clearance  reform efforts in line with the Intelligence Reform and Terrorism  Prevention Act (IRTPA) of 2004. Specifically, DOD (1) significantly  improved the timeliness of security clearances and met the IRTPA  objective for processing 90 percent of initial clearances on average within  60 days for fiscal year 2010, (2) worked with members of the Council to  develop a strategic framework for clearance reform, (3) designed quality  tools to evaluate completeness of clearance documentation, (4) issued  guidance on adjudication standards, and (5) continues to be a prominent  player in the overall security clearance reform effort, which includes  entities within the Office of Management and Budget, the Office of  Personnel Management, and the Office of the Director of National  Intelligence. These efforts have yielded positive results.
Continued congressional oversight and the committed leadership of DOD  have greatly contributed to the progress in addressing the problems with  the personnel security clearance process. We will continue to monitor  DOD’s efforts because security clearance reform is ongoing, and DOD  needs to place a high priority on ensuring that timeliness improvements  continue and quality is built into every step of the process using  quantifiable and independently verifiable metrics.
section_title: The 2010 Census
paragraphs: We removed the 2010 Census from our High-Risk List because the U.S.  Census Bureau (Bureau) generally completed its peak census data  collection activities consistent with its operational plans; released the  state population counts used to apportion Congress on December 21, 2010,  several days ahead of the legally mandated end-of-year deadline; and  remaining activities appear to be on track, including, as required by law,  delivering the data that states use for congressional redistricting by April  1, 2011.
A successful census is critical because the census is a constitutionally  mandated program used to apportion and redistrict the U.S. House of  Representatives, help allocate about $400 billion yearly in federal financial  assistance, and inform the planning and investment decisions of numerous  public- and private-sector entities.
In March 2008, we designated the 2010 Census a high-risk area because of  long-standing weaknesses in the Bureau’s information technology (IT)  acquisition and contract management function,   problems with the performance of handheld computers used to collect    uncertainty over the ultimate cost of the census, which escalated from an  initial estimate of $11.3 billion in 2001 to around $13 billion.
To address these issues and help secure a successful census, the Bureau  demonstrated strong commitment and top leadership support to mitigate  the risks, including bringing in experienced personnel to key positions and  taking steps to implement our recommendations to strengthen its IT and  other management and planning functions. At the same time, similar to the  case with the DOD Personnel Security Clearance Program, active  congressional oversight—including a dozen congressional hearings held  after we added the census to our High-Risk List—helped ensure the  Bureau effectively designed and managed operations and kept the  enumeration on schedule.
Although every census has its decade-specific difficulties, societal  trends—including growing concerns over personal privacy, more non- English speakers, and more people residing in makeshift and other  nontraditional living arrangements—make each decennial inherently  challenging. As shown in figure 1, the cost of enumerating each housing  unit has escalated from an average of around $16 in 1970 to around $98 in  2010, an increase of over 500 percent (in constant 2010 dollars). At the  same time, the mail response rate—a key indicator of a successful  census—has declined from 78 percent in 1970 to 63 percent in 2010. Put  another way, the Bureau has to invest substantially more resources each  decade in an effort to keep pace with key results from prior enumerations.
The bottom line is that the fundamental design of the enumeration—in  many ways unchanged since 1970—is no longer capable of delivering a  cost-effective headcount given ongoing and newly emerging societal  trends. Thus, while the 2020 Census may seem well over the horizon,  research and planning activities need to start early in the decade to help  ensure the 2020 Census is as cost-effective as possible. Indeed, the  Bureau’s past experience has shown that early investments in planning  can help reduce the costs and risks of downstream operations.
Going forward, potential focus areas for Census reform include new data  collection methods such as using administrative records from other  government agencies, including driver’s licenses; better leveraging  innovations in technology and social media to more fully engage census  stakeholders and the general public on census issues; reaching agreement  on a set of criteria that could be used to weigh the trade-offs associated  with the need for high levels of accuracy on the one hand, and the  increasing cost of achieving that accuracy on the other hand; and ensuring  that the Bureau’s approach to human capital management, collaboration,  capital decision-making, knowledge sharing, and other internal functions  are aligned toward delivering a more cost-effective headcount.
Ongoing congressional oversight over the course of the decade will also be  critical for ensuring the Bureau’s reform efforts stay on track.
The Bureau recognizes that it needs to change its method of doing  business and has already taken some important first steps in this regard.  For example, the Bureau is rebuilding its research directorate to lead early  planning efforts and has developed a strategic plan for 2020 and other  related documents that, among other things, outline the Bureau’s mission  and vision for 2020.
Thus, in looking ahead toward the next Census, it will be vitally important  to both identify lessons learned from the 2010 enumeration to improve  existing census-taking activities, as well as to re-examine and perhaps  fundamentally transform the way the Bureau plans, tests, implements,  monitors, and evaluates future enumerations in order to address long- standing challenges.
section_title: New High-Risk Area: Management of Federal Oil and Gas Resources
paragraphs: We have designated the Department of the Interior’s management of  federal oil and gas on leased federal lands and waters as high risk because  Interior (1) does not have reasonable assurance that it is collecting its  share of revenue from oil and gas produced on federal lands; (2) continues  to experience problems in hiring, training, and retaining sufficient staff to  provide oversight and management of oil and gas operations on federal  lands and waters; and (3) is currently engaged in a broad reorganization of  both its offshore oil and gas management and revenue collection  functions. With regard to this organizational effort, there are many open  questions about whether Interior has the capacity to undertake such a  reorganization while continuing to provide reasonable assurance that  billions of dollars of revenue owed the public are being properly assessed  and collected and that oil and gas exploration and production on federal  lands and waters is well-managed.
Federal oil and gas resources provide an important source of energy for  the United States, create jobs in the oil and gas industry, and generate  billions of dollars annually in revenues that are shared between federal,  state, and tribal governments. Revenue generated from federal oil and gas  production is one of the largest nontax sources of federal government  funds, accounting for about $9 billion in fiscal year 2009. Also, 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 inspection processes to ensure operational and  environmental safety. The National Commission on the BP Deepwater  Horizon Oil Spill and Offshore Drilling reported in January 2011 that this  disaster was the product of several individual missteps and oversights by  BP, Halliburton, and Transocean, which government regulators lacked the  authority, the necessary resources, and the technical expertise to prevent.
Historically, Interior’s Bureau of Land Management (BLM) managed  onshore federal oil and gas activities, while the Minerals Management  Service (MMS) managed offshore activities and collected royalties for all  leases. Interior recently began restructuring its oil and gas program,  transferring offshore oversight responsibilities to the newly created  Bureau of Ocean Energy Management, Regulation and Enforcement  (BOEMRE) and revenue collection to a new Office of Natural Resource  Revenue.
Interior faces ongoing challenges in three broad areas, including the  following:  Revenue collection. In 2008, GAO reported that Interior collected lower  levels of revenues for oil and gas production than all but 11 of 104 oil and  gas resource owners whose revenue collection systems were evaluated in  a comprehensive industry study—these resource owners included many  other countries as well as some states. GAO recommended that Interior  undertake a comprehensive reassessment of its revenue collection policies  and processes. Interior has commissioned such a study in response to  GAO’s September 2008 report, and the study is expected to be completed  in 2011. The results of the study may reveal the potential for greater  revenues to the federal government. GAO also reported in 2010 that  neither BLM nor MMS had consistently met their statutory requirements or  agency goals for oil and gas production verification inspections. Without  such verification, Interior cannot provide reasonable assurance that the  public is collecting its legal share of revenue from oil and gas development  on federal lands and waters. In addition, GAO reported in 2009 on  numerous problems with Interior’s efforts to collect data on oil and gas  produced on federal lands, including missing data, errors in company- reported data on oil and gas production, sales data that did not reflect  prevailing market prices for oil and gas, and a lack of controls over  changes to the data that companies reported. As a result of Interior’s lack  of consistent and reliable data on the production and sale of oil and gas  from federal lands, Interior could not provide reasonable assurance that it  was assessing and collecting the appropriate amount of royalties on this  production. GAO made a number of recommendations to Interior to  improve controls on the accuracy and reliability of royalty data. Interior  generally agreed with GAO’s recommendations and is working to  implement many of them, but these efforts are not complete and it is  uncertain if they will be fully successful.
Human capital. GAO has reported that BLM and MMS have encountered  persistent problems in hiring, training, and retaining sufficient staff to  meet its oversight and management of oil and gas operations on federal  lands and waters. For example, in 2010, GAO found that BLM and MMS  experienced high turnover rates in key oil and gas inspection and  engineering positions. As a result, Interior faces challenges meeting its  responsibilities to oversee oil and gas development on federal leases,  potentially placing both the environment and royalties at risk. GAO made  recommendations to address these issues. While Interior’s reorganization  of MMS includes plans to hire additional staff with expertise in oil and gas  inspections and engineering, these plans have not been fully implemented,  and it remains unclear whether Interior will be fully successful in hiring,  training, and retaining these staff. Further, human capital issues also exist  in the BLM and the management of onshore oil and gas, and these issues  have not been addressed in Interior’s reorganization plans.
Reorganization. In May 2010, the Secretary of the Interior announced  plans to reorganize MMS—its bureau responsible for overseeing offshore  oil and gas activities and collecting royalties—into three separate bureaus.  The Secretary of the Interior stated that dividing MMS’s responsibilities  among three separate bureaus will help ensure that each of the three  newly established bureaus have a distinct and independent mission. While  this reorganization may eventually lead to more effective operations, GAO  has reported that organizational transformations are not simple endeavors  and require the concentrated efforts of both leaders and employees to  realize intended synergies and accomplish new organizational goals. One  key practice that GAO has identified for effective organizational  transformation is to balance continued delivery of services with  transformational activities. However, we are concerned about Interior’s  capacity to find the proper balance given its history of management  problems and challenges in the human capital area. Specifically, GAO is  concerned about Interior’s ability to undertake this reorganization while  providing reasonable assurance that billions of dollars of revenues owed  the public are being properly assessed and collected and that oversight of  oil and gas exploration and production on federal lands and waters  maintains an appropriate balance between efficiency and timeliness on  one hand, and protection of the environment and operational safety on the  other. In addition, Interior’s reorganization efforts do not address BLM’s  ongoing challenges with its permitting and inspections programs and  human capital challenges.
Interior must successfully address the challenges GAO has identified,  implement open recommendations, and meet its routine responsibilities to  manage federal oil and gas resources in the public interest, while  managing a major reorganization that has the potential to distract agency  management from other important tasks and put additional strain on  Interior staff. While Interior recently began implementing a number of  GAO recommendations, including those intended to improve the reliability  of data necessary for determining royalties, the agency has yet to fully  implement a number of recommendations, including those intended to (1)  provide reasonable assurance that oil and gas produced from federal  leases is accurately measured and that the public is getting an appropriate  share of oil and gas revenues, and (2) address its long-standing human  capital issues.
section_title: Remaining High-Risk Areas
paragraphs: While there has been some progress on nearly all 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 GAO’s 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.
Medicare and Medicaid. GAO designated Medicare as a high-risk  program because its complexity and susceptibility to improper payments,  added to its size, have led to serious management challenges. In 2010,  Medicare covered 47 million elderly and disabled beneficiaries and had  estimated outlays of $509 billion. GAO also designated Medicaid as a high- risk program in part due to concerns about the adequacy of fiscal  oversight, which is necessary to prevent inappropriate program spending.  Medicaid, the federal-state program that covered acute health care, long- term care and other services for over 65 million low-income people in  fiscal year 2009, consists of more than 50 distinct state-based programs  that cost the federal government and states an estimated $381 billion that  year. The program accounts for more than 20 percent of states’  expenditures and exerts continuing pressure on state budgets.
New directives, implementing guidance, and legislation will impact the  Centers for Medicare & Medicaid Services’ (CMS) efforts to reduce  improper payments in the next few years. The administration issued  Executive Order 13520 on Reducing Improper Payments in 2009 and  related implementing guidance in 2010. In addition, the Improper  Payments Elimination, and Recovery Act of 2010 (IPERA) amended the  Improper Payment Information Act of 2002 (IPIA) and established  additional requirements related to accountability, recovery auditing,  compliance and noncompliance determinations, and reporting. In its fiscal  year 2010 Agency Financial Report, the Department of Health and Human  Services estimated that federal Medicare and Medicaid improper payments  in fiscal year 2010 were more than $70 billion.
CMS has taken actions to address some of the improper payment  requirements. For example, recovery audit contractors identify improper  payments and thus, help agencies to recover them. As required by law,  CMS implemented a national Medicare Recovery Audit Contractors (RAC)  program in 2009 and has provided guidance to the states for implementing  Medicaid RACs. Other recent CMS program integrity efforts include  issuing regulations tightening provider enrollment requirements. In  addition, in compliance with the Executive Order, CMS has established  reduction targets for the Medicare Fee-for-Service, Medicare Advantage,  and Medicaid programs’ improper payment rates.
We view these new laws, directives, and agency efforts as positive steps  toward improving transparency over and reducing improper payments in  the Medicare and Medicaid programs. However, it is too soon to determine  whether the activities called for in recent laws and guidance will achieve  their goals of reducing improper payments while continuing to ensure that  federal programs serve and provide access to intended beneficiaries. CMS  is still developing its improper payment rate methodology for its  prescription drug program and has not been able to demonstrate sustained  progress in lowering its improper payment rates for the other parts of  Medicare. CMS needs a plan with clear measures and benchmarks for  reducing Medicare’s risk for improper payments and other issues that  leave the programs at risk. For Medicaid, we continue to stress that more  federal oversight of its fiscal integrity is needed.
Identifying the nature, extent and underlying causes of improper payments  is an essential prerequisite to taking appropriate action to reduce them, as  is implementing GAO’s recommendation to develop an adequate corrective  action process to address vulnerabilities. Further, CMS could take other  actions to help better address the issue of improper payments in the  Medicare and Medicaid programs. For Medicare, these include  establishing policies to improve contract oversight and better target  review of claims for services with high rates of improper billing. For  Medicaid, these include (1) ensuring that states develop adequate  corrective action processes to address vulnerabilities to improper  Medicaid payments to providers, (2) issuing guidance to states to better  prevent payment of improper claims for controlled substances, and (3)  improving oversight of managed care payment rate setting and Medicaid  supplemental payments. The level of importance CMS, HHS, and the  administration place on the efforts to implement the requirements  established by recent laws and guidance and implementation of our  recommendations will be key factors in reducing improper payments in  the Medicare and Medicaid programs and ensuring that federal funds are  used efficiently and for their intended purposes.
Managing Federal Real Property and DOD Support Infrastructure  Management. Since our 2009 update, sufficient progress has been made  to narrow the scope of both the Managing Federal Real Property and DOD  Support Infrastructure Management high-risk areas. However, in both  areas, excess federal property remains a concern.
The federal real property portfolio is vast and diverse. It totals over  900,000 buildings and structures with a combined area of over 3 billion  square feet. Progress has been made on many fronts, including significant  progress with real property data reliability and managing the condition of  facilities.  Since 2004, both OMB and GSA have demonstrated commitment  in promoting reform efforts through establishing and improving a  centralized real property data base.  Agencies have developed asset  management plans, standardized data, and adopted performance  measures.  Further, a June 2010 presidential memorandum directed  agencies to identify and eliminate excess properties to produce a $3 billion  cost savings by 2012.
However, federal agencies continue to face long-standing problems, such  as overreliance on leasing, excess and underutilized property, and  protecting federal facilities.  For example, OMB has not developed a  corrective action plan to address the fact that agencies increasingly rely on  leasing.  GSA, the government’s principal landlord, leases more property  than it owns.  In addition, although efforts to dispose of unneeded assets  have been made, a large number of excess and underutilized assets  remain. Agencies reported 45,190 buildings as underutilized in fiscal year  2009—an increase of 1,830 such buildings from the previous fiscal year.  Maintaining this unneeded space is costly. In fiscal year 2009, agencies  reported underutilized buildings accounted for $1.66 billion in annual  operating costs. As GAO has reported over the years, attempted corrective  action measures have not addressed the root causes that exacerbate these  problems, such as various legal and budget-related limitations and  competing stakeholder interests.
While the Department of Defense has made progress in better aligning its  missions and facilities and disposing of unneeded facilities through the  base realignment and closure process, the Department still has a  significant amount of excess infrastructure.  Senior Defense officials have  stated that further reductions may be needed to ensure that its  infrastructure is appropriately sized to carry out its missions in a cost- effective manner.
Federal agencies also have made limited progress and continue to face  challenges in securing real property. GAO has reported that, since  transferring to the Department of Homeland Security, the Federal  Protective Service (FPS) experienced management and funding challenges  that have hampered its ability to protect about 9,000 federal facilities. In  particular, FPS has limited ability to allocate resources using risk  management and lacks appropriate oversight and enforcement to manage  its growing contract guard program. In 2010, GAO found that limited  information about risks and the inability to control common areas pose  challenges to protecting leased space.
As a result, the management of federal real property remains high risk,  with the exceptions of governmentwide real property data reliability and  management of condition of facilities, which GAO found to be sufficiently  improved to be no longer considered high risk.
Notwithstanding the progress in property data reliability which allows  OMB to measure progress governmentwide, other actions need to occur to  address root problems, including a strategy to address the continued  reliance on leasing in cases where ownership would be less costly.  This  strategy should identify the conditions, if any, under which leasing is an  acceptable alternative.  In addition, OMB and the Federal Real Property  Council should develop potential strategies to reduce the effect of  competing stakeholder interests as a barrier to disposing of excess  property.
DOD Weapon Systems Acquisition. Over the next 5 years, the  Department of Defense (DOD) expects to invest almost $343 billion (in  fiscal year 2011 dollars) on the development and procurement of major  defense acquisition programs. Defense acquisition programs usually take  longer, cost more, and deliver fewer quantities and capabilities than DOD  originally planned. Congress and DOD have taken steps to improve the  acquisition of major weapon systems, yet some program outcomes  continue to fall short of what was agreed to when the programs started.  With the prospect of slowly growing or flat defense budgets for the  foreseeable future, DOD must get better value for its weapon system  spending and find ways to deliver needed capability to the warfighter for  less than it has spent in the past.
While the performance of individual programs can vary greatly, GAO’s  work has revealed significant aggregate cost and schedule growth in  DOD’s portfolio of major defense acquisition programs. In 2009, GAO  reported that the total cost growth on DOD’s fiscal year 2008 portfolio of  96 major defense acquisition programs was over $303 billion (fiscal year  2011 dollars) and the average delay in delivering initial capability was 22  months.
DOD has demonstrated a strong commitment, at the highest levels, to  address the management of its weapon system acquisitions. At the  strategic level, DOD has started to reprioritize and rebalance its weapon  system investments. In 2009 and 2010, the Secretary of Defense proposed  canceling or significantly curtailing weapon programs, such as the Army’s  Future Combat System Manned Ground Vehicles and the Navy’s DDG-1000  Destroyer—which he characterized as too costly or no longer relevant for  current operations. DOD plans to replace several of the canceled programs  and has an opportunity to pursue knowledge-based acquisition strategies  on the new programs. In addition, the Under Secretary of Defense for  Acquisition, Technology, and Logistics has embraced an Army initiative to  eliminate redundant programs within capability portfolios and make  affordability a key requirement for weapon programs. These actions are  consistent with past GAO findings and recommendations. However, if  these initiatives are going to have a lasting, positive effect, they need to be  translated into better day-to-day management and decision making. For  example, GAO has recommended that DOD empower its capability  portfolio managers at the departmentwide level to prioritize needs, make  decisions about solutions, and allocate resources; and develop criteria to  assess the affordability and capabilities provided by new programs in the  context of overall defense spending.
At the program level, GAO’s recent observations present a mixed picture  of DOD’s adherence to a knowledge-based acquisition approach, which is  key for improving acquisition outcomes. For 42 programs GAO assessed in  depth in 2010, there was continued improvement in the technology, design,  and manufacturing knowledge the programs had at key points in the  acquisition process. However, most programs were still proceeding with  less knowledge than best practices suggest, putting them at higher risk for  cost growth and schedule delays. DOD has begun to implement a revised  acquisition policy and congressional reforms that address these and other  common acquisition risks. If DOD consistently implements these reforms,  the number of programs adhering to a knowledge-based acquisition  approach should increase and the outcomes for DOD programs should  improve. To help promote accountability for compliance with acquisition  policies and address the factors that keep weapon acquisitions on the  High-Risk list, DOD has worked with GAO and the Office of Management  and Budget to develop a comprehensive set of process and outcome  metrics to provide consistent criteria for measuring progress.
Due to actions by Congress, such as the Weapon Systems Acquisition  Reform Act of 2009, and DOD, the department’s policy for defense  acquisition programs now reflects the basic elements of a knowledge- based acquisition approach and its weapon system investments are being  rebalanced. However, to improve outcomes over the long-term, DOD  should (1) develop an analytical approach to better prioritize capability  needs; (2) empower portfolio managers to prioritize needs, make decisions  about solutions, and allocate resources; and (3) enable well-planned  programs by providing them the resources they need, while holding itself  and its programs accountable for policy implementation via milestone and  funding decisions and reporting on performance metrics.
DOD Supply Chain Management. We have identified Department of  Defense (DOD) supply chain management as a high-risk area due to  weaknesses in the management of supply inventories and responsiveness  to warfighter requirements. Supply chain management is the operation of a  continuous and comprehensive logistics process, from initial customer  order for material or services to the ultimate satisfaction of the customer’s  requirements. DOD estimated that its logistics operations, including supply  chain management, cost about $194 billion in fiscal year 2009. Our work  has identified three major areas of weakness in DOD supply chain  management—requirements forecasting, asset visibility, and materiel  distribution.
Since our last high-risk update, DOD has taken a major step toward  improving management of supply inventories. In response to a legislative  mandate, the department submitted its Comprehensive Inventory  Management Improvement Plan to Congress in November 2010. DOD  reported that the total value of its secondary inventory was more than $91  billion in 2009, and that $10.3 billion (11 percent) of its secondary  inventory has been designated as excess and categorized for potential  reuse or disposal. In its plan, DOD establishes goals for reducing this  excess inventory, which could limit future costs associated with its supply  inventories. Issuing the plan and establishing working groups and  associated reporting structures will help resolve long-standing problems in  requirements forecasting and other areas of inventory management.  Nevertheless, DOD faces implementation challenges, including aggressive  timelines and benchmarking; non-standard definitions, processes,  procedures, and metrics across DOD components; and the need for  coordination and collaboration among multiple stakeholders.
DOD will also need to place continued management emphasis on  improving asset visibility and materiel distribution, the two other focus  areas for improvement in supply chain management. Weaknesses in these  focus areas can affect DOD’s ability to support the warfighter. For  example, we reported on supply support problems and shortages of  critical items during the early operations in Iraq and on the numerous  logistics challenges that DOD faces in supporting forces in Afghanistan. In  July 2010, DOD issued its Logistics Strategic Plan, providing high-level  direction for supply chain management and other logistics areas. DOD,  however, has not developed detailed corrective action plans that address  the asset visibility and materiel distribution problems or their root causes  and effective solutions.
DOD also will need to fully implement a program for monitoring and  independently validating the effectiveness and sustainability of corrective  actions and will need to demonstrate progress in all three of the key focus  areas. Among other things, DOD could build on the performance  management framework in the Logistics Strategic Plan and the inventory  improvement plan to develop management processes to comprehensively  guide and integrate its various improvement efforts, implement outcome- based performance measures, gather reliable performance data, and  demonstrate progress towards its goals for effective and efficient supply  chain management. DOD has acknowledged that it needs to track the  speed, reliability, and overall efficiency of the supply chain.
Enforcement of Tax Laws. Internal Revenue Service (IRS) enforcement  of the tax laws is vital to ensuring that all taxes owed are paid, which in  turn can promote voluntary compliance by giving taxpayers confidence  that others are paying their fair share. Typically, about 84 percent of taxes  owed are paid voluntarily and timely. IRS last estimated the resulting tax  gap to be $345 billion for 2001. After late payments and IRS enforcement,  the net tax gap was $290 billion. Many experts believe that the tax gap was  underestimated for 2001 and has grown since then.
Congress and IRS have taken innovative actions aimed at improving tax  compliance, some based on GAO’s work. In 2010, IRS began implementing  a new regulatory regime for paid tax return preparers intended to help  improve taxpayer compliance. Congress recently passed laws requiring  financial institutions to report information on taxpayers’ foreign bank  accounts, taxpayers’ securities’ basis, and businesses’ credit card receipts.
In reports and testimonies, we have said that because the tax gap arises  from so many different types of taxes and taxpayers, multiple approaches  will be needed to reduce it. Suggestions from our recent work include    Continuing to perform compliance research and use it to identify and  target areas of noncompliance;    Developing a strategy for ensuring compliance by networks of related  businesses;   Expanding IRS’s legal authority to correct simple tax return errors before  refunds are issued; and   Leveraging the new paid preparer requirements, new sources of  information about taxpayers, and new technology to improve service and  compliance.
If approaches like these could reduce the tax gap by 1 percent, the  resulting revenue increase would be about $3 billion annually.
The complexity of the tax code also contributes to noncompliance and  therefore the tax gap. Complexity can cause taxpayer confusion and  provide opportunities to hide willful noncompliance. Consequently,  improved tax compliance and a smaller tax gap could be one of the  benefits of tax reform and simplification.
section_title: Sustaining Progress 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. Continued perseverance in addressing high-risk areas will  ultimately yield significant benefits. Lasting solutions to high-risk  problems 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.
The GAO’s high-risk update and High Risk and Other Major Government  Challenges Web site, www.gao.gov/highrisk/, can help inform the oversight  agenda for the 112th Congress and guide efforts of the administration and  agencies to improve government performance and reduce waste and risks.
Thank you, Mr. Chairman, Ranking Member Cummings, and Members of  the Committee. This concludes my testimony. I would be pleased to  answer any questions you may have.
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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