The public faces the risk that critical services could be severely disrupted by the Year 2000 computing crisis. Financial transactions could be delayed, airline flights grounded, and national defense affected. The many interdependencies that exist among the levels of governments and within key economic sectors of our nation could cause a single failure to have wide-ranging repercussions. While managers in the government and the private sector are acting to mitigate these risks, a significant amount of work remains. The federal government is extremely vulnerable to the Year 2000 issue due to its widespread dependence on computer systems to process financial transactions, deliver vital public services, and carry out its operations. This challenge is made more difficult by the age and poor documentation of many of the government’s existing systems and its lackluster track record in modernizing systems to deliver expected improvements and meet promised deadlines. Year 2000-related problems have already occurred. For example, an automated Defense Logistics Agency system erroneously deactivated 90,000 inventoried items as the result of an incorrect date calculation. According to the agency, if the problem had not been corrected (which took 400 work hours), the impact would have seriously hampered its mission to deliver materiel in a timely manner. Our reviews of federal agency Year 2000 programs have found uneven progress, and our reports contain numerous recommendations, which the agencies have almost universally agreed to implement. Among them are the need to establish priorities, solidify data exchange agreements, and develop contingency plans. One of the largest, and largely unknown, risks relates to the global nature of the problem. With the advent of electronic communication and international commerce, the United States and the rest of the world have become critically dependent on computers. However, with this electronic dependence and massive exchanging of data comes increasing risk that uncorrected Year 2000 problems in other countries will adversely affect the United States. And there are indications of Year 2000 readiness problems internationally. In September 1997, the Gartner Group, a private research firm acknowledged for its expertise in Year 2000 computing issues, surveyed 2,400 companies in 17 countries and concluded that “hirty percent of all companies have not started dealing with the year 2000 problem.” As 2000 approaches, the scope of the risks that the century change could bring has become more clear, and the federal government’s actions have intensified. This past February, an executive order was issued establishing the President’s Council on Year 2000 Conversion. The Council Chair is to oversee federal agency Year 2000 efforts as well as be the spokesman in national and international forums, coordinate with state and local governments, promote appropriate federal roles with respect to private-sector activities, and report to the President on a quarterly basis. As we testified in March, there are a number of actions we believe the Council must take to avert this crisis. In a report issued just last week, we detailed specific recommendations. The following summarizes a few of the key areas in which we recommend action: Because departments and agencies have taken longer than recommended to assess the readiness of their systems, it is unlikely that they will be able to renovate and fully test all mission-critical systems by January 1, 2000. Consequently, setting priorities is essential, with the focus being on systems most critical to our health and safety, financial well being, national security, or the economy. Agencies must start business continuity and contingency planning now to safeguard their ability to deliver a minimum acceptable level of services in the event of Year 2000-induced failures. In March we issued an exposure draft of a guide providing information on business continuity and contingency planning issues common to most large enterprises; OMB recently adopted this guide as a model for federal agencies. Agencies developing such plans only for systems currently behind schedule, however, are not addressing the need to ensure business continuity in the event of unforeseen failures. Further, such plans should not be limited to the risks posed by the Year 2000-induced failures of internal information systems, but must include the potential Year 2000 failures of others, including business partners and infrastructure service providers. The Office of Management and Budget’s (OMB) assessment of the current status of federal Year 2000 progress is predominantly based on agency reports that have not been consistently verified or independently reviewed. Without such independent reviews, OMB and the President’s Council on Year 2000 Conversion have little assurance that they are receiving accurate information. Accordingly, agencies must have independent verification strategies involving inspectors general or other independent organizations. As a nation, we do not know where we stand overall with regard to Year 2000 risks and readiness. No nationwide assessment—including the private and public sectors—has been undertaken to gauge this. In partnership with the private sector and state and local governments, the President’s Council could orchestrate such an assessment. At this point I would like to address our findings at specific agencies, beginning with the Social Security Administration. We see significant progress at SSA, and it is essential that this progress continue. SSA has been anticipating the change of century since 1989, initiating an early response to the potential crisis. It made important early progress in assessing and renovating mission-critical mainframe systems—those necessary to prevent the disruption of benefits—and has been a leader among federal agencies. Three key risks remained, however, as discussed in our report of last October and testimony of this past March. One major risk concerned Year 2000 compliance of the 54 state Disability Determination Services (DDS) that provide vital support to the agency in administering SSA’s disability programs. The second major risk concerned data exchanges, ensuring that information obtained from these thousands of outside sources—such as other federal agencies, state agencies, and private businesses—was not “corrupted” by data being passed from systems not Year 2000 compliant. Third, such risks were compounded by the lack of contingency plans to ensure business continuity in the event of systems failure. We recommended several specific actions to mitigate these risks. These included (1) strengthening monitoring and oversight of state DDS Year 2000 activities, (2) expeditiously completing the assessment of mission-critical systems at DDS offices and using those results to establish specific plans of action, (3) discussing the status of DDS Year 2000 activities in SSA’s quarterly reports to OMB, (4) quickly completing SSA’s Year 2000 compliance coordination with all data exchange partners, and (5) developing specific contingency plans that articulate clear strategies for ensuring the continuity of core business functions. At the request of this Committee’s Subcommittee on Social Security and the Senate Special Committee on Aging, we are monitoring SSA’s implementation of our recommendations. SSA has agreed with all of our recommendations, and actions to implement them have either been taken or are underway. Regarding state DDSs, SSA has enhanced its monitoring and oversight by establishing a full-time DDS project team, designating project managers and coordinators, and requesting biweekly status reports. Further, almost all states have now submitted initial Year 2000 plans; SSA now reports that 22 DDSs have had their systems renovated\ tested, and implemented. In addition, beginning with its November 1997 report, SSA has included information on DDSs in its quarterly reports to OMB. SSA has also identified its external data exchanges and is in the process of coordinating with its partners to make the exchanges Year 2000 compliant. Further, SSA began working with the Department of the Treasury in March of this year to test for the disbursement of benefit checks and other direct deposit payments. Finally, in accordance with our guidance, SSA has completed a high-level, overall plan for business continuity. This plan represents a sound framework from which SSA can build its specific contingency plans. These specific plans—for each core business area—need to be developed to ensure that operations continue uninterrupted. As the nation’s largest health insurer, Medicare expects to process over a billion claims and pay $288 billion in benefits annually by 2000. The consequences, then, of its systems’ not being Year 2000 compliant could be enormous. In a report issued last May, we discussed the critical managerial and technical challenges facing the Health Care Financing Administration (HCFA) in its efforts to ensure the viability of systems to handle Medicare transactions into the next century. We found that HCFA had not required systems contractors to submit Year 2000 plans for approval. Further, it did not have contracts or other specific legal agreements with any contractors, other than one recently selected contractor, stating how or when the Year 2000 problem would be corrected, or whether contractors would certify that they would correct the problem. HCFA had also not identified critical areas of responsibility for Year 2000 activities. Although HCFA’s regional offices have a role in overseeing contractor efforts, their specific Year 2000 responsibilities had not been defined, nor had guidance been prepared on how to monitor or evaluate contractor performance. While HCFA had been assessing the impact of the century change on its internal systems, it had not completed a similar review of Medicare contractors’ claims processing systems. Further, HCFA had not required its contractors to prepare an assessment of the severity of impact of potential Year 2000 problems. Plans for independent validation of contractors’ strategies and test plans were also lacking. Likewise, while HCFA had asked contractors to identify their system interfaces, it had no plans for approving the contractors’ approaches for addressing interface and data exchange issues. Moreover, HCFA had not developed contingency plans to address continuity of business operations in the event of Year 2000-induced failures. HCFA officials were again relying on the contractors themselves to identify and complete the necessary work in time to avoid problems. Yet the contractors had not developed contingency plans—and did not intend to—because they considered this HCFA’s responsibility. To address these deficiencies in HCFA’s approach, we made several recommendations to the Secretary of Health and Human Services. These included identifying responsibilities for managing and monitoring Year 2000 actions, preparing an assessment of the severity of impact and timing of potential Year 2000 problems, and developing contingency plans.