Exchanging data electronically is a common method of transferring information among federal, state, and local governments; private sector organizations; and nations around the world. As computers play an ever-increasing role in our society, more information is being exchanged regularly. Federal agencies now depend on electronic data exchanges to execute programs and facilitate commerce. For example, federal agencies routinely use data exchanges to transfer funds to contractors and grantees; collect data necessary to make eligibility determinations for veterans, social security, and medicare benefits; gather data on program activities to determine if funds are being expended as intended and the expected outcomes achieved; and share weather information that is essential for air flight safety. To facilitate commerce, federal agencies regulate or provide oversight to organizations that use data exchanges extensively to process payments through the banking system; purchase or sell securities through stock exchanges and futures markets; and facilitate import and export shipments through ports of entry. We have reported on potential data exchange issues that could affect many of these activities (see the list of related products at the end of this report). An electronic data exchange is the transfer (sending or receiving) of a data set using electronic media. Electronic data exchanges can be made using various methods, including direct computer-to-computer exchanges over a dedicated network; direct exchanges over commercially available networks or the Internet; or exchanges of magnetic media such as computer tapes or disks. The information transferred in a data set often includes at least one date. Because many computer systems have been using a 2-digit year in the date format, the data exchanges have also used 2-digit years. Now that many formats are being changed to use 4 digits to correctly process dates beyond 1999, data exchanges using 2-digit year formats must also be changed to 4 digits or bridges must be used to convert incoming 2-digit years to 4-digit years or convert outgoing 4-digit years to 2-digits. These conversions generally involve the use of algorithms to distinguish the century (for example, 2-digit years less than 50 may be considered 2000 dates and 2-digit years of 50 or more may be considered 1900 dates). In addition to using bridges, filters may be needed to screen and identify incoming noncompliant data to prevent it from corrupting data in the receiving system. These conversions are not necessary if the data exchanges are designed to employ certain electronic data interchange standards (see appendix II for a glossary of data exchange standards used by some federal agencies). A data exchange standard defines the format of a specific data set for transmission. Some of these standards specify a 4-digit year format. Federal agencies often use exchanges that do not involve a standard format. Instead, the data exchanges consist of individual text files with a structure that is established by agreement between the exchange partners. Files using these formats are generally referred to as flat files. As part of their Year 2000 correction efforts, organizations must identify the date formats used in their data exchanges, develop a strategy for dealing with exchanges that do not use 4-digit year formats, and implement the strategy. These efforts generally involve the following steps. Assess information systems to identify data exchanges that are not Year 2000 compliant. Contact the exchange partner and reach agreement on the date format to be used in the exchange. Determine if data bridges and filters are needed. Determine if validation processes are needed for incoming data. Set dates for testing and implementing new exchange formats. Develop and test bridges and filters to handle nonconforming data. Develop contingency plans and procedures for data exchanges and incorporate into overall agency contingency plans. Implement the validation process for incoming data. Test and implement new exchange formats. The testing and implementation of new data exchanges must be closely coordinated with exchange partners to be completed effectively. In addition to an agency testing its data exchange software, effective testing involves end-to-end testing—initiation of the exchange by the sending computer, transmission through intermediate communications software and hardware, and receipt and acceptance by receiving computer(s), thus completing the exchange process. Resolving data exchange issues will require significant efforts and costs according to federal and state officials. At an October 1997 summit, federal and state information technology officials estimated that about 20 percent of Year 2000 efforts will be directed toward correcting data exchange problems. This could be significant considering the magnitude of expected Year 2000 costs. According to OMB’s February 15, 1998, Year 2000 status reports of 24 federal agencies, the federal government’s Year 2000 costs are estimated to be about $4.7 billion. Based on estimates provided by states to NASIRE, the states’ Year 2000 costs are estimated to be about $5.0 billion. If Year 2000 data exchange problems are not corrected, the adverse impact could be severe. Federal agencies exchange data with thousands of external entities, including other federal agencies, state agencies, private organizations, and foreign governments and private organizations. If data exchanges do not function properly, data will not be exchanged between systems or invalid data could cause receiving computer systems to malfunction or produce inaccurate computations. For example, such failures could result in the Social Security Administration not being able to determine the eligibility of applicants or compute and pay benefits because it relies on data exchanges for eligibility information and payment processing. This could have a widespread impact on the public since the agency processes payments to more than 50 million beneficiaries each month, which in fiscal year 1997 totaled about $400 billion; National Highway Traffic Safety Administration not being able to provide states with information needed for driver registrations, which could result in licenses being issued to drivers with revoked or suspended licenses in other states; Department of Veterans Affairs not being able to determine correct benefits and make payments to eligible veterans; U.S. Coast Guard not receiving weather information necessary to plan search and rescue operations; and Nuclear Regulatory Commission not receiving information from nuclear reactors that is needed to trigger emergency response actions. The overall responsibility for tracking and overseeing actions by federal agencies to address Year 2000 issues rests with OMB and the President’s Council on Year 2000 Conversion that was established in February 1998. OMB has been tracking major federal agencies’ Year 2000 activities by requiring them to submit quarterly status reports. Efforts to address data exchange issues are in early stages. Federal and state coordinating organizations reached initial agreements in 1997 on the steps to address data exchanges issues; however, many federal agencies and states have not yet finished assessing their data exchanges to determine if they are Year 2000 compliant. Further, little progress has been made in completing key steps such as reaching agreements with partners on exchange formats, developing and testing bridges and filters, and developing contingency plans. Federal and state coordinating organizations began to address Year 2000 data exchange problems in 1997. Initial agreements on steps to address data exchange issues were reached at a state/federal summit in October 1997 that was hosted by the State of Pennsylvania and sponsored by the federal Chief Information Officer Council (CIO Council) and NASIRE. At the summit, federal agency and state representatives agreed to establish a contiguous 4-digit year date as a default standard for exchanges. They also agreed that federal agencies will take the lead in providing information on exchanges with states, any planned date format changes, and timeframes for any changes. In addition, joint federal and state policy and working groups were established to continue the dialogue on exchange issues. To implement these agreements, OMB issued instructions in January 1998 for federal agencies to inventory all data exchanges with outside parties by February 1, 1998, and coordinate plans for transitioning to Year 2000 compliant data exchanges with exchange partners by March 1, 1998. OMB also set March 1999 as the target date to complete the data exchange corrections. In addition, for the February 15, 1998, quarterly reports, OMB required the federal agencies to describe the status of their efforts to inventory all data exchanges with outside entities and the method for assuring that those organizations will be or have been contacted, particularly state governments. However, OMB did not require the agencies to report their status in completing key steps for data exchanges, such as those listed earlier in this report. According to its Year 2000 Coordinator, NASIRE plans to continue implementing the agreements reached at the October 1997 summit through active participation in joint policy and working groups and by holding additional state/federal meetings on data exchange issues. These activities will supplement NASIRE’s continuing efforts to provide states with access to information on vendors, software, and methodologies for resolving Year 2000 problems. The federal CIO Council’s State Interagency Subgroup also plans to continue pursuing the agreements reached at the October 1997 summit through joint state and federal meetings on data exchange issues and by hosting a state/federal meeting in April 1998. The federal CIO Council also designated an official in the State Department to act as the focal point for international exchange issues. The designee plans to work through federal agencies that have international operations to increase our foreign data exchange partners’ awareness of Year 2000 issues. For example, we were told that the State Department will add Year 2000 issues to bilateral and multilateral discussion agendas, such as the Summit of the Americas and the Asian-Pacific Economic Cooperation meetings. Twenty of the 42 federal agencies we surveyed reported having finished inventorying and assessing data exchanges for mission-critical systems as of the first quarter of 1998. Eighteen agencies have not completed their assessments and the status of one federal agency is not discernable because it was not able to provide information on their total number of exchanges and the number assessed. The remaining three federal agencies said they do not have external data exchanges. Federal agencies reported that they have a total of almost 500,000 data exchanges with other federal agencies, states, local governments, and the private sector for their mission-critical systems. Almost 90 percent of the exchanges were reported by the Federal Reserve and the Department of Housing and Urban Development (HUD) which reported having 316,862 and 133,567, respectively. The Federal Reserve exchanges data with federal agencies and the private sector using software it provides to these entities. The Federal Reserve reported that it has assessed all of these exchanges.Similarly, HUD has exchanges with housing authorities, states agencies, and private sector organizations.