Our bimonthly reviews of selected states’ and localities’ will examine how Recovery Act funds are being used and whether they are achieving the stated purposes of the act. These purposes include: to preserve and create jobs and promote economic recovery; to assist those most impacted by the recession; to invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits; and to stabilize state and local government budgets in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases. We have selected a core group of 16 states that we will follow over the next few years to provide an ongoing longitudinal analysis of the use of funds under the Recovery Act. The states are Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. These states contain about 65 percent of the U.S. population and are estimated to receive about two-thirds of the intergovernmental grants funds available through the Recovery Act. We selected these states on the basis of outlay projections, percentage of the U.S. population represented, unemployment rates and changes, and a mix of states’ poverty levels, geographic coverage and representation of both urban and rural areas. In addition, we will sample localities within these states to provide a perspective on the use of Recovery Act funds at a local level. GAO will be reaching out to the respective governors’ and state auditors’ offices to begin the work needed for our first bimonthly review to be completed this April. In addition to reporting on the core group of 16 states, we will be reviewing the recipient reports from all 50 states as part of our responsibilities to review these filings. These recipient reports are to include information on funds received, the amount of recovery funds obligated or expended to projects or activities, and the projects or activities for which funds were obligated or expended. Depending on our assessments, we may visit states other than the 16 core group to review targeted areas. Finally, our Forensic Audits and Special Investigations unit (FSI) will be undertaking ongoing risk assessments to identify specific programs and funding streams that are especially vulnerable to fraud, and it will conduct targeted investigations based on its assessments. In addition to our bimonthly reviews of selected states and localities, we also have efforts underway to meet two other short-term requirements. Specifically, within 45 days after the Recovery Act was signed—by April 3, 2009—we must make 13 appointments to the Health Information Technology (HIT) Policy Committee, which is to recommend a policy framework for development and adoption of a nationwide health information infrastructure to permit the electronic exchange and use of health information. On February 25, 2009, we placed a notice in the Federal Register to solicit nominations to the HIT Policy Committee. Also, within 60 days, we must report on the Small Business Administration’s efforts to, among other things, increase liquidity in the secondary market for SBA loans, and our work on this review is well underway. The Recovery Act delineates an important set of responsibilities for the accountability community. GAO is charged with reviewing the use of funds by selected states and localities. IGs across government are expected to audit the efforts of federal agencies’ operations and programs related to the Recovery Act, both individually within their particular entities and collectively, as many of them are members of the Board. The Recovery Act established the Board to help prevent waste, fraud, and abuse. The Board is to review contracts and grants to ensure they meet applicable standards, follow competition requirements, and are overseen by sufficient numbers of trained acquisition and grants personnel. The Board has a range of authorities and is charged with reporting to the President and Congress any potential problems requiring immediate attention in addition to reporting quarterly and annually. Because funding streams of the Recovery Act will flow to the states and localities from different federal agencies, it is important for us to coordinate with the IGs and the Board. Consequently, soon after the act was passed, I reached out to the IG community and, with Ms. Phyllis Fong, the Chair of the Council of Inspectors General on Integrity and Efficiency (CIGIE), hosted an initial coordination meeting on February 25, 2009, with Inspectors General or their representatives from 17 agencies. It was a very productive discussion in which we outlined coordination approaches going forward. Soon after the President appointed him as Chair of the Board on February 23, 2009, I talked with Mr. Earl Devaney, former Inspector General at the Department of the Interior. I am confident that we will coordinate our respective efforts well, both with the IG community and the Board. We work well together on other large coordination efforts such as the audit of the U.S. government’s consolidated financial statements whereby GAO relies on the individual efforts of the IG’s financial audits of their departments and entities across government. We also have already reached out to the state and local audit community to have initial discussions and establish coordination approaches. On February 26, 2009, we participated in a conference call arranged by the National Association of State Auditors, Comptrollers and Treasurers with state auditors or their representatives from 46 states and the District of Columbia. On February 27, 2009, we held a similar discussion with local auditors from many localities throughout the country. State and local auditors perform very important oversight functions in their jurisdictions and have unique knowledge about their governments; we plan to coordinate with them closely in carrying out our responsibilities. It is also important for us to coordinate with the Office of Management and Budget (OMB), especially in regard to reporting requirements and other guidance to fund recipients and on what information is to be collected in order to adequately evaluate how well the Recovery Act achieves its objectives. For example, OMB Director Peter Orszag and I have received a letter from the National Association of State Auditors, Comptrollers and Treasurers; the National Association of State Budget Officers; the National Association of State Chief Information Officers; and the National Association of State Procurement Officials. This letter expresses their strong interest in coordinating reporting and compliance aspects of the Recovery Act. I have been in contact with OMB and these groups, and we and OMB are undertaking discussions with them. While there are many reporting and other implementation issues that lie ahead, we are encouraged by OMB’s initial implementation guidance. In its guidance, OMB points out the need to balance the desire to get funds out quickly to help turn the economy around with the equally important need to make sure funds are spent properly, efficiently, and effectively. One particular area that also needs attention is identifying the data to be collected concerning the use and results of the Recovery Act’s various tax provisions. Accountability and transparency are perhaps easier to envision for the outlay portions of the stimulus package, but the billions of dollars in tax provisions in the Recovery Act are considerably different than outlay programs in their implementation, privacy protections, and oversight. Most tax benefits are entirely administered by the Internal Revenue Service (IRS), and all taxpayer information, including the identity of those using the benefits, is protected by law from disclosure. Further, unlike for most outlay programs, IRS does not know who makes use of the tax benefit until after the fact, if then. In general, IRS does not collect information on who claims tax benefits and to what extent, unless it determines such information is necessary for tax administration. In part because of the Paperwork Reduction Act, IRS generally avoids collecting information not directly needed for tax administration because both taxpayers and IRS incur costs and other burdens associated with any information-reporting requirements. As a result, in the past, information often has not been available to help Congress determine the effectiveness of some tax provisions or even identify the numbers of taxpayers using some provisions. For example, information was not available to Congress to determine the effect of the Empowerment Zone and Enterprise Community program on poverty, unemployment, and economic growth. IRS did not collect information on who used some of the tax benefits or the communities where benefits were used, or both. The lack of data on the use of the Empowerment Zone and Enterprise Community tax benefits was of particular concern because the estimated amount of the tax benefits was greater than the amount of grant funds dedicated to the program. For instance, in the first round of the program, recipients received about $1 billion in grants; the Joint Committee on Taxation had estimated that tax benefits would reduce federal revenues by $2.5 billion between 1994 and 1998. Absent direction from the Department of the Treasury (Treasury) or OMB, IRS is unlikely to collect sufficient information to support congressional oversight of the act’s tax provisions because some provisions have characteristics similar to existing provisions in other laws where we found insufficient information was collected to enable congressional oversight. Accordingly, we have reached out to both OMB and Treasury about their plans to collect and report data on the Recovery Act tax provisions. Both OMB and Treasury indicated they initially focused on the spending programs and not the tax provisions in the Recovery Act. They acknowledged that additional data beyond what IRS would normally collect may be needed and that they would consider the tax-data needs as they proceed. There are many implementation challenges to ensuring adequate accountability and efficient and effective implementation of the Recovery Act. Experience tells us that the risk for fraud and abuse grows when billions of dollars are going out quickly, eligibility requirements are being established or changed, new programs are being created, or a mix of these characteristics. This suggests the need for a risk-based approach to target for attention specific programs and funding structures based on known strengths, vulnerabilities, and weaknesses, such as a track record of improper payments or contracting problems. In that regard, the accountability community has, in recent years, produced a wide variety of best practice and related guides, which are available to agencies to assist them in ensuring they have the needed internal controls in place from the outset.