VA comprises three major components: VBA, which provides benefits to veterans and their dependents; VHA, which provides health care services through the nation’s largest health care system; and the National Cemetery System, which provides burial services in 115 national cemeteries. In fiscal year 1997, VBA reported that it paid about $23 billion in benefits to about 4.4 million veterans and their dependents. VBA distributes these benefits through five programs: compensation and pension (the largest), educational assistance, housing loan guaranty, vocational rehabilitation and counseling, and insurance. VBA administers its benefits programs through one or more of 58 regional offices supported by three data processing centers. During this same period, VHA reported that it spent $17 billion providing medical care to about 3 million veterans. Such care is managed through 22 Veterans Integrated Service Networks (VISN) which are geographically dispersed throughout the country. VISNs manage 711 separate facilities: 172 VHA medical centers, 376 outpatient clinics, 133 nursing homes, and 30 domiciliaries. VA has 11 mission-critical system areas. As shown in table 1, VBA has six of these areas and VHA has two. About two-thirds of the VBA software applications—95 of the 151—are considered business priorities, essential to the department’s mission. Over one third of VHA’s applications—104 of the 283—are business priorities critical to the department. The objective of this review was to assess the status of VBA’s and VHA’s Year 2000 programs. In conducting this review, we applied criteria from our Year 2000 Assessment Guide, and our Year 2000 Business Continuity and Contingency Planning Guide. We reviewed Year 2000 documents developed by VA, including its June 1997 Year 2000 Solutions document; its January 13, 1997, Year 2000 Readiness Review; and its quarterly Year 2000 reports to OMB for May 1997, August 1997, November 1997, February 1998, and May 1998. In assessing the status of VBA’s Year 2000 program, we reviewed and analyzed numerous VBA documents, including its October 1997 Year 2000 Risk Assessment; its January 1998 response to our May 1997 report, and monthly Year 2000 progress reports to VA. We also reviewed and analyzed VBA project plans, schedules, and progress reports for its replacement and conversion initiatives. In addition, we met with and/or interviewed project teams, including contractor support, in Washington, D.C., and Roanoke, Virginia, as well as computer personnel at VBA’s data centers at Hines, Illinois, and Philadelphia, Pennsylvania, and its Austin Systems Development Center to discuss their Year 2000 activities. We also discussed VBA’s Year 2000 efforts with VBA headquarters officials in Washington, D.C.; VBA regional office officials in Baltimore, Maryland; Chicago, Illinois; Roanoke, Virginia; Philadelphia, Pennsylvania; Waco, Texas; St. Paul, Minnesota; St. Petersburg, Florida; and representatives from VA’s Office of Information Resources Management. In assessing the status of VHA’s Year 2000 program, we reviewed and analyzed numerous VHA documents, including its April 30, 1997, Year 2000 Plan; its July 1997 Year 2000 Product Risk Program; its January 30, 1998, Assessment Phase Report; its strategic plan; and monthly reports to VA. We also reviewed the Year 2000 plan prepared by each of VHA’s 22 VISNs. We also reviewed and analyzed the backup and contingency plans prepared by the VISNs and VISN cost estimates. In addition, we met with and/or interviewed VISN project team members in Pittsburgh, Pennsylvania; Philadelphia, Pennsylvania; Wilmington, Delaware; Washington, D.C.; Baltimore, Maryland; Martinsburg, West Virginia; and Chicago, Illinois. We also met with VHA software development staff at Silver Spring, Maryland, and Hines, Illinois, to discuss progress and problems involved with their Year 2000 activities. We also discussed VHA’s Year 2000 efforts with VHA headquarters officials in Washington, D.C., and a representative from VA’s Office of Information Resources Management. We performed our work from July 1997 through June 1998, in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Secretary of Veterans Affairs or his designee. The Assistant Secretary for Policy and Planning provided us with written comments that are discussed in the “Agency Comments and Our Evaluation” section and are reprinted in appendix I. VBA has made progress in addressing the recommendations in our May 1997 report and in making its information systems Year 2000 compliant. However, concerns remain surrounding the renovation of two key mission-critical applications, assessment of COTS software products, and contingency planning. Unless these issues are addressed, the issuance of benefits to veterans and their dependents could be delayed or interrupted. In May 1997, we made numerous recommendations designed to correct weaknesses in VBA’s Year 2000 efforts. These were in the areas of program management, systems assessment and prioritization, completion of inventories and development of plans for addressing internal and external software interfaces, prioritizing information technology projects to make the best use of limited resources, and developing contingency plans for critical business processes. Additionally, in September 1997, we expressed concern about the compressed schedules of key software developments and renovations, especially for VBA’s largest and most critical payment system, compensation and pension. The schedule for this system was compressed because computer analysts responsible for it were not available and were working on legislatively mandated changes and cost-of-living increases. In addition, VBA had not completed assessments of its internal and external data interfaces. In concurring with all our recommendations and addressing other concerns, VBA has taken several actions. For example, it changed its Year 2000 strategy from developing new systems to converting existing ones. Second, a single VBA Year 2000 project office now oversees and coordinates all VBA Year 2000 activities. Third, VBA has completed inventories for its mission-critical systems, data interfaces, and third-party products, and assessed the products in these inventories for Year 2000 compliance. Finally, VBA has developed a schedule for replacing and/or converting all noncompliant systems or products. VBA has also made progress in renovating its noncompliant software applications. Since July 1997, it has reported increasing from 50 to 75 the percentage of renovated mission-critical applications. It also has reported completing renovation for its vocational rehabilitation and insurance systems, and making significant progress in its education system. VBA has also recently completed inventories and assessed Year 2000 compliance for applications developed at its regional offices. In addition, to address our recommendations and concerns regarding its data interfaces, VBA has developed Year 2000-related agreements with its external trading partners for 278 of 287 interfaces. According to VBA’s Year 2000 Project Manager, VBA has developed a bridge for five of the nine interfaces remaining without agreements so that information from these partners can be converted into an acceptable format. VBA must still work out agreements with the Department of Defense on the remaining four interfaces, which deal with payment systems. In these cases, the external partner has not determined the data format for the interfaces so VBA can ensure that the data are acceptable to its systems. The Project Manager informed us that VBA will continue to work with Defense in resolving this problem. Despite VBA’s progress in addressing the Year 2000 problem, areas of risk remain. These include (1) limited progress in making two key mission-critical applications compliant, (2) the unexpected need to reassess its COTS software products that VBA was previously assured were fully Year 2000 compliant, and (3) the lack of business continuity and contingency plans for core business processes. If these issues are not adequately addressed, benefits to veterans could be delayed or interrupted. VBA has made limited progress in renovating its compensation and pension online application. Specifically, the level of reported renovation has remained at 18 percent for several months. As we pointed out in our September 1997 testimony, one factor for this slow pace has been that computer analysts responsible for Year 2000 renovations have been working on legislative mandates, special projects, and yearly changes, such as cost-of-living increases and clothing allowances. To address this problem, VBA contracted for additional Year 2000 support. The contractor was tasked with analyzing the software code using a software conversion tool, providing the tool’s recommendations to VBA analysts, and making renovations, once approved by VBA analysts. However, the Project Manager informed us that only 35 percent of the renovations could be made using the tool. The remaining 65 percent must be made by the analysts because they involve benefit calculations or other issues that the tool cannot handle. These same analysts must also review and test all Year 2000 changes, including those made by the contractor, as well as continue to work on legislative mandates, special projects, and other changes before 2000. In commenting on a draft of this report, VA stated that VBA’s compensation and pension online application is now 59 percent compliant, up from the 18 percent noted in our report. VBA’s Year 2000 Project Manager told us that the progress was due to use of a software development tool and that additional resources had been assigned to this project, as we recommended. The milestones for the compensation and pension online application include completion of renovation by September 4, 1998, and implementation by October 5, 1998. VBA is also having problems renovating the Beneficiary Identification and Record Locator Sub-System, a software application in its mission-critical administrative system. VBA hired a contractor to modernize and renovate the system to ensure Year 2000 compliance. The contractor, however, had difficulty meeting its deliverable dates. For example, it did not complete renovation in April 1998, as originally planned, or in June 1998, as rescheduled.